The outbreak of the COVID-19 pandemic led to customers’ high patronage of e-commerce stores due to the ease of online shopping and paying for goods without stepping out of their homes. Customers only had to place orders and pay for items with their cards.
Unsurprisingly, e-commerce stores became targets of cybercriminals’ fraud attacks, leading to huge losses.
In 2022, an estimated $41 billion loss was recorded, and in 2023 it is expected to rise to $48 billion. To minimize these losses, e-commerce stores have adopted One-Time Passwords and other two-factor authentication methods that add more security to transactions.
One-Time Passwords are random and time-bound codes sent to users to complete a transaction or verify their identity. These codes help confirm a user’s identity at the point of registration and checkout after a successful order. Examples of OTP include OTP via SMS, Email OTP, and Voice OTP.
In this post, we will examine why e-commerce stores should use OTP SMS as a 2-factor authentication for business. In particular, we will look at how OTP SMS helps e-commerce enhance security, prevent fraud, improve customer trust, comply with regulations, and increase efficiency and engagement with a global audience.
OTP SMS Features and Benefits Explained
OTP via SMS enjoys the most widely used authentication method over other multi-factor authentication methods. Let’s find out what makes OTP SMS unique and what features and benefits it has to offer to businesses.
Features of OTP SMS
One-Time Passwords are only valid for a short time, usually about 5-10 minutes. This time limit means that hackers have a small window to access this code which may be difficult in less than 10 minutes. Time sensitivity adds to the security of OTPs.
One-Time Password security only works once from its name and loses its usefulness. The implication of this is that it is not subject to replay attacks. OTP sent via SMS cannot be reused subsequently, even if it is saved on the user’s phone. For every transaction, a fresh set of codes are generated for authentication.
The OTP codes sent as One-Time password security are completely random and have no patterns to how they are generated. Trying to guess an OTP is a sheer waste of time for hackers, making it a secure verification method.
SMS OTP can be Received on Every Phone
Another unique feature of SMS OTP codes is that it does not require an internet connection to receive it. Unlike Email OTP, which needs a secure connection to internet services, SMS OTP only needs a mobile network connection to work. This means users don’t have to use smartphones to receive SMS OTP.
SMS OTP works after a correct static password has been entered. No code will be generated if the user or an unauthorized person inputs a wrong password. SMS OTP is usually a second step in the verification process, except where it is used as a single-factor authentication.Benefits of SMS OTP in business.
Benefits of SMS OTP in business
Difficult to hack
One-time passwords are random codes generated to authenticate transactions. Because there is no pattern in how the numbers are generated, it is almost impossible to guess. Even if the hacker can guess the codes, they are useless once the customer uses them. This single-use feature of OTP guarantees the security of user accounts.
Easy to use
How do One-Time Passwords work? Simple. The customer logs into his account using his username and static password. An OTP is sent to his phone number for him to complete the transaction or verification. The above describes how easy it is for customers to use OTP SMS. Unlike other verification methods like biometrics that require proper placement of fingerprint or retina to authenticate the transaction, SMS OTP is simpler to use.
Cheap security measure
Adopting SMS OTP verification for your e-commerce business is relatively cheap to integrate. SMS OTP is more affordable than other 2FA options like biometrics or security tokens, especially when using a bulk SMS provider.
Since phone users are used to receiving an SMS, sending OTP codes to confirm transactions is convenient. Fast delivery of SMS OTP promotes a smooth user experience and a frictionless authorization process.
SMS-based OTP is reliable, especially when using a reputable bulk SMS marketing tool.
The high delivery rate and 98% open rate of SMS make it a reliable channel for e-commerce stores to validate customer transactions.
How Can E-Commerce Businesses Leverage the Power of SMS OTP?
One-Time Passwords via SMS offer great security coverage for companies dealing with sensitive user information, such as e-commerce firms. We will tell you why using SMS OTP for user authentication is a no-brainer.
Reduce Fraud and Improve Security
Fraud is one of the top problems confronting e-commerce businesses. Before purchasing online, customers have to log in to their accounts using a username and a static password; it is necessary to use another authentication method to verify access to that account. Static passwords can easily be hijacked by cybercriminals using brute force or phishing. How OTP works is to prevent unauthorized entry into the customer account by notifying the user of an attempt to use his login details.
An example of this in e-commerce is the OTP sent to users at checkout. This SMS verification ensures that the account owner authorizes payment, preventing unauthorized use. Alibaba and Amazon are some e-commerce stores that use OTP to authenticate transactions.
These two best practices may help you enhance security essentially:
- When using a One-Time Password authentication system, make the codes as long as possible, between 6 and 10 characters. This way, it is much harder to break for any hacker.
- Limit the rate at which a customer sends OTP. You can make it one per minute or every 30 seconds to discourage hacking.
Enhance Customer Trust and User Experience
The good thing about SMS OTP is that customers are already familiar with it. SMS OTP means less friction for users and, with guaranteed security, builds customer loyalty to the brand. E-commerce sites typically link an online buyer’s debit card details to their accounts. A breach of this sensitive information will jeopardize the reputation of such a company.
On the other hand, an e-commerce shop that prioritizes security is trusted by customers. For example, 84% of customers say they are loyal to a brand they can trust with sensitive information.
Here are some of the best practices to improve customer trust and user experience:
- Educate your customers not to reveal the details or contents of the OTP to ensure that SMS OTP guarantees adequate security.
- Encourage online buyers to opt into SMS OTP to verify their orders by offering them incentives such as discounts.
Remember, not all customers see the need for 2-factor authentication, so you have to either incentivize them to use it or make it a mandatory part of your transaction process.
Importantly, it would help if you titled the SMS with “One-Time Password” so the recipient would know and apply it.
Compliance with Industry Regulations and Standards
Even though SMS is not completely safe on its own, SMS OTP is still regarded as a Strong Customer Authentication (SCA) mechanism, which makes it compliant with regulations like revised Payment Services Directives (PSD2) issued by the European Banking Authority.
According to the Guidelines, a valid authentication requires at least two out of three components. It can be either something the user owns (smartphone or PC), something the user knows (password or PIN), or something they are (fingerprint or retina scan). SMS OTP satisfies the requirement by being something the customer knows (OTP) and something he knows (SIM card and phone).
The following best practices may help to comply with industry regulations:
- Use a mobile number verifier to confirm the user’s identity before adding them to your e-commerce customer database to ensure you send OTP to the correct customer.
- Be abreast of other regulations concerning OTP SMS. For instance, the European Banking Authority mandates a higher threshold of security where an SMS contains details like the payee’s name and the transaction amount.
Engage a Global Audience
According to Statista, about 6.8 billion people will own a mobile phone in 2023. to receive SMS OTP. E-commerce stores can service a global customer base using SMS OTP as an authentication method.
To cater to this customer base, some of which live in developing nations, SMS OTP is the most effective authentication solution. With a mobile network connection, customers anywhere can receive One-Time Password SMS.
Here are the best practices you should consider using in that regard:
- Use a reliable bulk SMS for enterprise providers to send OTP to customers in different countries.
- If you have international customers, you should also utilize a mobile phone number verifier to confirm each customer’s identity and country code before sending OTPs to them.
Increased Efficiency and Cost Savings
Using SMS OTP verification for eCommerce puts security in the hands of the customers and reduces the workload of customer support staff. Invariably, this leads to lower costs of hiring staff and more productivity as password resets become automated. Password resets are some of the leading reasons people reach customer support. If they can reset the password themselves, it helps you free up staff for other duties.
Let’s get through the best practices you should know to optimize efficiency and achieve significant cost savings.
- Use an OTP generation service that allows customers to resend the OTP anytime it fails. They will direct their complaints to customer support if they can’t resend the OTP.
- Apply for services of a reliable SMS provider to guarantee quick delivery of SMS OTP. An unreliable service will lead to failed transactions and, consequently, less revenue for your e-commerce store.
The reasons for you as an e-commerce operator to use OTP SMS are numerous, but these top 5 reasons we mentioned should leave you with no doubt that you need it. E-commerce stores that adopt it enjoy the benefits of a cost-effective and reliable security measure against fraud. While your customers enjoy the convenience and security of sensitive details, it affords.If you are ready to begin the implementation of SMS OTP for your business, BSG — a global communication platform, is exactly the right partner for you. We are a white-label SMS provider with solutions such as a mobile number verifier, OTP generation, and SMS API that can help you scale your SMS OTP efforts.