Best practices for OTP: How to reduce costs and secure your users?

OTPs are essential for keeping accounts secure, even if passwords have been compromised. But here’s the catch - managing OTP systems isn’t always smooth sailing. Businesses often face challenges like delivery failures, rising costs, fraud schemes, and frustrated users dealing with delayed or expired codes.

In this article, we’ll dive into these challenges and share tried-and-tested best practices to help you optimize your OTP system. By the end, you’ll know how to make your OTPs cost-effective, user-friendly, and secure - all while avoiding common pitfalls.

What are the key challenges of implementing OTPs?

Implementing an OTP system may seem straightforward at first, but it often comes with hidden complexities that can impact both your bottom line and user satisfaction.

From ensuring reliable delivery to managing costs and tackling fraud, here are the key challenges businesses face when deploying OTP systems:

• Delivery failures: issues with SMS or email not being received by users due to network errors, spam filters, or incorrect contact information,

• Managing costs: carrier fees, service provider margins, global reach, and user behavior all contribute to rising expenses,

• Fraud: techniques like IRSF and SMS pumping can inflate costs by generating fake traffic,

• User experience concerns: challenges like long delays, expired codes, or user frustration with complex workflows can harm conversions and satisfaction.

While these challenges may seem daunting, they’re far from insurmountable.

By leveraging the right strategies, businesses can not only overcome these obstacles but also optimize their OTP systems for better performance, lower costs, and improved user satisfaction. Let’s explore how you can achieve this.

6 best practices for OTPs to overcome common challenges

After delivering hundreds of millions of OTPs globally, we’ve learned a thing or two about optimizing your OTP system.

From crafting cost-effective messages to preventing fraud and enhancing deliverability, here are 6 proven practices to tackle common challenges head-on.

1/ Optimize your OTP message to reduce costs and increase conversions

When crafting OTP messages, every character counts, literally. A well-optimized message not only ensures clear communication but also helps control costs. Here’s how to keep it efficient:

Keep it short

SMS costs are calculated based on message length, with charges applied per 160-character segment. Exceeding this limit—even by a single character—can double your charges.

For example:

• "123456 is your OTP for MyApp". Fits in 1 segment, keeping costs low,

• "Your one-time password is 123456. Thank you for using our service". Spills into 2 segments, increasing costs.

While it might be tempting to add a catchy tagline or extra branding, remember that every additional character impacts your budget. Keep your messages concise and focused on delivering the essential information.

Avoid emojis and UCS-2 encoding

Emojis and non-standard characters might make your message stand out, but they come with a cost.

SMS encoding works in two formats:

• GSM-7: Supports most Latin-based characters and allows 160 characters per segment,

• UCS-2: Required for emojis and special characters but reduces the limit to 70 characters per segment, doubling costs for every additional 70 characters.

For example:

• "123456 is your OTP for MyApp" (GSM-7). Fits in 1 segment,

• "123456 is your OTP for MyApp 😊" (UCS-2). Requires 2 segments.

To minimize costs, avoid emojis and only use UCS-2 when absolutely necessary, such as in regions with non-Latin scripts.

How does Prelude help you save?

If you’re using Prelude, your messages are automatically encoded in the most efficient format. By default, they are sent in GSM-7, ensuring maximum character capacity. If UCS-2 encoding is required, Prelude handles the switch seamlessly, keeping your costs as low as possible.

This approach ensures your OTP messages are clear, cost-effective, and optimized for seamless delivery.

2/ Optimize the content for conversion

Human errors, such as not opening SMSs promptly or entering incorrect codes, can lead to multiple authentication attempts. This not only frustrates users but also increases your message costs. To minimize these issues, your SMS content must be optimized for conversions, ensuring users verify their OTP on the first attempt.

The secret to effective OTP messages

After delivering hundreds of millions of authentication messages, we’ve identified a winning formula:

“{{Code}} is your validation code for {{App Name}}”.

This format is concise, clear, and immediately actionable. It puts the critical information - the code - front and center, making it easy for users to find and enter without delay.

If you want to go a step further, consider adding a tagline that reflects your brand’s identity. For example, Prelude’s client BeReal adds a tagline to its OTP messages:

“7860 is your validation code for BeReal. Your friends for real”.

This message structure helped BeReal achieve a 90% global conversion rate for user verification.

Why does this work so well? 

1. Code visibility: placing the code at the start of the message ensures it’s instantly visible in SMS notifications. Users can access and input the code without having to search for it or exit your app,
   
   

2. Clarity and brevity: a short, straightforward message prevents confusion and minimizes the risk of errors. Users know exactly what to do as soon as they read the message,

   
   

3. Brand alignment: adding a tagline enhances the overall user experience by reinforcing your brand identity. However, it’s crucial to keep it short to avoid distracting from the main purpose: delivering the verification code.

Make every word count

By focusing on clarity and efficiency, your OTP messages can do more than verify users - they can enhance their overall experience with your brand. Optimizing for conversion not only reduces costs but also improves user satisfaction by making the process seamless.

3/ Optimize your delivery strategy

When it comes to OTP delivery, ensuring reliability and efficiency is key. By optimizing your delivery strategy, you can reduce costs, avoid disruptions, and guarantee your OTPs reach users promptly, regardless of their location.

Use multiple routes to maximize efficiency

Relying on a single SMS provider might seem straightforward, but it comes with significant risks, especially when it comes to cost, reliability, and coverage. Multi-routing - distributing traffic across several providers - offers a smarter, more resilient approach.

Here’s why:

1. Optimizing costs: different providers offer different rates depending on the region or volume of traffic. By distributing your messages strategically, you can take advantage of these variations to get the best possible price for your SMS OTPs,
   
   

2. Increasing deliverability: even the best providers experience occasional downtime or deliverability issues. Multi-routing ensures your messages have a fallback option—if one provider fails, traffic can automatically be rerouted through another without causing delays or disruptions,
   
   

3. Expanding coverage: some providers perform better in specific countries or regions. Multi-routing allows you to select providers that excel in targeted areas, ensuring your OTPs are reliably delivered wherever your users are located.

How does this work in practice?

Imagine a global company sending OTPs to users in Europe, South America, and Asia. Provider A may offer competitive rates in Europe but struggle with deliverability in remote areas of South America. 

Meanwhile, Provider B might specialize in Asian markets with superior regional coverage. By leveraging both providers, the company ensures cost efficiency and reliable delivery across all regions.

Why is this essential for your business?

An optimized delivery strategy is more than a technical choice - it’s a way to ensure that your users have a seamless experience, no matter where they are. Multi-routing reduces the risks associated with downtime or network issues while helping you stay within budget.

4/ Use multiple channels

When it comes to delivering OTPs, SMS is a reliable choice but it’s not always the best option. Online messaging channels such as WhatsApp, RCS, or Viber can be more cost-effective and equally efficient, especially when tailored to user preferences and regional conditions.

Why diversify your channels?

Not all users have consistent cellular coverage, and not all regions have the same level of SMS reliability.

Online messaging channels offer several advantages:

• Cost efficiency: platforms like WhatsApp and RCS are often cheaper than SMS, especially for high volumes,

• Enhanced reach: these channels can bypass issues like poor cellular network coverage, making them more reliable in specific regions,

• User preference: messaging apps are widely used and often preferred by users, offering a familiar and convenient experience.

Imagine your user base includes individuals in Brazil, where cellular networks in some areas can be unreliable. In these cases, delivering an OTP through WhatsApp, which has widespread adoption and better connectivity, can ensure the code reaches the user quickly and reliably.

Similarly, in regions where RCS is supported and widely used, leveraging this channel can provide faster and more seamless OTP delivery.

Using multiple channels expands your reach, reduces costs, and ensures OTPs are delivered efficiently, even in challenging environments. By diversifying your delivery methods, you can provide a seamless experience for all users, regardless of their location or network conditions.

5/ Prevent fraud before it impacts your bill

Fraudulent activities, such as SMS pumping, can severely inflate your OTP costs and disrupt user trust. Proactively detecting and preventing these issues is key to safeguarding your system and budget.

What is SMS pumping?

SMS pumping, also known as International Revenue Share Fraud (IRSF), is a scheme where attackers exploit OTP systems to generate illegitimate SMS traffic.

Here’s how it works:

1. Collusion with telecom operators: fraudsters partner with certain telecom providers to profit from high-rate international SMS traffic,
   
   

2. Triggering fake requests: by repeatedly requesting OTPs to numbers under these agreements, attackers generate excessive traffic,
   
   

3. You pay, they profit: every SMS sent to these fraudulent numbers increases your costs, leaving you with inflated bills.

This form of fraud not only impacts your bottom line but also strains your infrastructure, potentially leading to delays for legitimate users.

How to detect SMS pumping?

Detecting SMS pumping early can prevent significant financial and operational damage. Watch out for:

• Unusual traffic spikes: sudden, unexplained increases in OTP requests, especially from specific regions or prefixes, often signal fraudulent activity,

• High failure rates: a large number of undeliverable messages to the same region or set of numbers could indicate misuse,

• Suspicious patterns: repeated requests from the same users or IP addresses within a short time frame should raise red flags.

How to prevent SMS pumping?

To stay ahead of fraudsters, deploy a multi-layered defense strategy:

• Rate limiting: restrict the number of OTP requests per user, phone number, or IP address within a given timeframe,

• Geographic filtering: block or flag requests originating from high-risk regions known for fraudulent activity,

• Phone number verification: use lookup tools to validate numbers and detect disposable or fraudulent ones before sending OTPs,

• Real-time monitoring: leverage analytics to detect anomalies and receive alerts for suspicious behavior.

How Prelude helps protect against fraud?

Prelude integrates advanced anti-fraud measures to ensure your OTP system stays secure and cost-efficient. Here’s what sets it apart:

Four-layer protection: Prelude combines heuristics, AI models, commercial data providers, and shared intelligence from its client network to block fraudulent traffic with accuracy : 

• Heuristics: basic rules to block up to 70% of attacks,

• AI models: advanced algorithms to stop an additional 99% of threats beyond heuristics,

• Data enrichment: commercial databases for precise fraud detection,

• Shared knowledge: a collaborative approach ensures that fraud detected for one client benefits all,

• Granular blocking: rather than shutting out entire regions, Prelude pinpoints and blocks fraudulent traffic while allowing legitimate users to connect.

Why proactive fraud prevention matters? 

Fraud prevention isn’t just about saving money, it’s about maintaining the integrity of your system and ensuring a smooth experience for your users. By addressing fraud proactively, you protect your budget, enhance system reliability, and build trust with your audience.

Choose the right OTP (One-Time Password) service provider

Selecting the right OTP service provider is critical for ensuring smooth, reliable, and cost-effective delivery of OTPs to your users. The right provider will offer more than just high-quality delivery; they’ll also align with your business needs, scalability, and budget. Here’s what to consider:

Delivery rates and speed

When it comes to OTPs, speed and reliability are non-negotiable. Your users expect to receive their OTPs instantly, without delays. A provider that delivers fast OTPs helps reduce the chances of codes expiring, which can frustrate users.

Look for a provider that ensures quick delivery, ideally with a proven track record for high success rates. This guarantees OTPs are delivered on time, reducing the risk of failed deliveries, which could cost you both money and user trust.

Global reach

Your business might have users all around the world, so it's important to choose a provider with global reach. A good OTP provider will ensure that messages are sent successfully to users in any region, without worrying about the reliability of their networks.

Check if your provider has strong coverage in key regions where your users are located. If your service spans across different countries, a provider with international routing capabilities and local sender IDs can significantly enhance delivery success and user engagement.

Ease of integration

The process of integrating your OTP system should be quick and seamless. Your chosen provider must offer simple integration with your existing platforms - whether it's mobile apps, websites, or customer service systems.

Look for providers that offer clear and comprehensive API documentation, along with SDKs or pre-built libraries to speed up implementation. The easier it is to integrate, the faster you can roll out OTPs across your system.

Transparent pricing

No one likes hidden costs, especially when it comes to managing large volumes of OTP messages. Ensure your provider offers clear and transparent pricing. You should know exactly what you're paying for, with no surprises at the end of the month.

Make sure the pricing structure is easy to understand and includes all associated costs, from the per-message price to any extra charges for international routes or retries. A provider with flexible pricing based on your volume can also help you scale as your business grows.

Customer support

Even the best OTP systems can run into occasional issues, so solid customer support is essential. Choose a provider that offers responsive and accessible support when you need it.

Look for providers who offer 24/7 support, ideally with a dedicated team familiar with OTP-related issues. Multiple support channels - like live chat, email, or phone - make it easy to get help quickly when problems arise.

Choosing the right OTP service provider isn’t just about delivery - it’s about ensuring that your system is reliable, cost-effective, and ready to scale with your business. By focusing on speed, global coverage, integration ease, pricing clarity, and top-notch support, you'll have the foundation for an OTP system that keeps both your users and budget secure.

Optimizing your OTP system isn’t just about security; it’s about creating a seamless, cost-effective experience for your users. By implementing best practices like message optimization, multi-routing, and diversifying delivery channels, you can tackle common challenges like fraud, delivery failures, and rising costs. With the right approach, you can improve user satisfaction while keeping your system secure and efficient.

Ready to optimize your OTP system? Start for free with Prelude and see how we can help reduce your verification costs and improve conversions. Or, reach out to our sales team to learn more about how we can support your OTP process!