SMS Verification: What is it and how does it work?

In 2023, a staggering 10 accounts were compromised every second, as reported by Surfshark's global study. This relentless data breach epidemic means millions of personal records are still being stolen and leaked on a daily basis - including, potentially, your users’ favorite passwords. That's why it's crucial for businesses to be able to secure their users' accounts by means other than their login and password. And to do this, most of them rely on SMS verification, a simple and effective method of protecting their users' accounts.

So what is SMS verification? How does it work? And is it really secure? Let's dive in.

What is SMS verification?

SMS verification is a security method that uses Short Message Service (SMS) to confirm a user’s identity. It is employed to validate that an online user is genuinely who they claim to be before permitting actions like logging into an account, processing financial transactions, or accessing sensitive information.

SMS verification provides an additional layer of security alongside the user ID and password, which is essential for companies aiming to safeguard their users and themselves from malicious users and cyber threats.

SMS verification is utilized in two-factor authentication (2FA) or multi-factor authentication (MFA) systems to enhance security. In this setup, the phone serves as the "something you have" factor, complementing the "something you know" factor, which is the user’s password.

How does SMS verification work?

From a user’s perspective, SMS verification is pretty straightforward:

1. Initiate action: The user triggers an action that requires a verification, such as logging in, making a transaction, or changing a password.

2. Receive code: The user receive a SMS containing a One-Time Password (OTP), a 4 to 8 digit code generated randomly. This code is valid for a short period of time and can only be used once.

3. Enter code: The user inputs the OTP into the app or website. If the code matches, the system confirms the user’s identity and allows access to the requested action.

Behind the scene, all of this happens automatically and instantly. The codes are generated, shared and validated directly by a SMS verification API, integrated directly in the company’s app, website or platform - but more on that later.

Examples of SMS verification in real life

SMS verification is widely used by companies that handle a high volume of users and user sensitive information. Here are some examples:

• Banking, fintech and crypto companies use SMS verification to ensure compliance and to secure transactions with fast and reliable verification.

• Social media, messaging and dating applications use it to ensure the privacy and authenticity of their platform for all their users by verifying users when they sign up or when they trigger suspicious activities such as resetting a password.

• Retail and e-commerce brands and websites use SMS verification to enhance user trust and reduce fraud within their marketplaces.

• Health-related businesses rely on SMS verification to protect sensitive information and maintain secure communication with their users.

Why is SMS verification so important?

Preventing fraud

SMS verification is essential for keeping your users safe and preventing their account and sensitive information from falling into the hands of the first person who comes along.

Passwords alone are fallible: between users who use the same password everywhere, those who use passwords that are too simple or too obvious (no, your date of birth is not a strong password, even if you were born on 29 February) and those who are hacked through social engineering or database hacking.

Adding a second layer of security by relying on the user's phone number, which is unique to each person, makes your users' accounts much more secure. A Google study has shown that SMS codes block 100% of automated bot attacks, 96% of bulk fishing attacks and 76% of targeted attacks.

And protecting your users obviously means protecting yourself. Fraudulent activities can result in significant financial losses, including expenses for remediation, legal fees, compensation to affected users, and potential lawsuits.

Legal and regulatory compliance

Implementing SMS verification also enables your company to comply with legal directives concerning cybersecurity and the security of your users' online information.

Here are a few examples:

• The GDPR strongly encourages businesses to implement strong authentication methods to protect their users' data

• The Payment Card Industry Data Security Standard (PCI DSS) requires all companies managing their users' credit card information to include multi-factor authentication for accessing cardholder data.

• The Health Insurance Portability and Accountability Act (HIPAA) requires American businesses to protect electronic protected health information with robust access controls.

As regulations on online data security continue to emerge, implementing SMS verification is a good way of anticipating these regulations and future-proofing your business.

Strengthening consumer trust

Implementing SMS verification will appeal not only to your colleagues in the legal team, but also directly to your users.

Over 25% of online users have abandoned transactions due to mistrust in an app or website’s security. That’s a quarter of your acquisition efforts and budget going up in smoke!

Online, particularly when dealing with sensitive information, information privacy is vital for users. Protecting this data is a further guarantee of attracting and retaining new users, and can serve as a competitive advantage. Conversely, media coverage of a data leak can severely damage a company's image.

What are the advantages of SMS verification?

SMS verification is one of several ways of setting up a 2FA system, so let's take a look at what makes SMS so effective and why it is so widely used by businesses around the world.

A seamless verification experience

With over 7 billion people owning a phone—accounting for 90% of the global population—SMS stands out as the most widely used method for two-factor authentication (2FA). Its universal reach ensures that nearly everyone is familiar with SMS and verification codes.

For businesses with mobile apps, SMS-based authentication offers a particularly seamless experience. Users can receive their codes without needing to leave the app, streamlining the process and enhancing convenience.

A secure authentication method

SMS verification is currently one of the most secure authentication methods available. It provides greater protection than relying on a password alone or using email verification. Indeed, email accounts are more vulnerable to phishing, malware, and other attacks compared to phone numbers.

High performance

With its high delivery and open rates, SMS ensures that users receive their OTPs almost instantly. This immediacy facilitates a smooth and efficient authentication experience.

For example, at Prelude, our customers who use SMS verification have a conversion rate of 95%, which means that more than 9 out of 10 users who receive a code actually use it.

Cost effective

Due to the minimal infrastructure required and the low development costs, SMS verification is a cost-effective approach to user authentication.

What really impacts the cost of SMS verification is the cost of sending individual SMS messages, which can be relatively low as you can see on our worldwide SMS prices list here (but note that our prices are lower than the market average, because we work in partnership with several suppliers to negotiate prices for our customers).

Easy to implement and to scale

From a company's perspective, implementing SMS verification is both easy and straightforward. This method doesn't necessitate significant infrastructure changes or the allocation of extensive resources. At Prelude, we've observed companies successfully implement their OTP systems in under an hour with just a single team member.

SMS verification is also a highly scalable solution. For example, providers like Prelude partner with multiple carriers, allowing their clients to enter new markets without the need to switch providers. Additionally, they possess the infrastructure to handle increased volumes instantly, ensuring that as their clients' user bases expand, they can manage new user verifications effortlessly and without limitations.

Is SMS verification safe?

SMS verification is very effective at mitigating risk, due to two key elements:

• The shared OTP is random and temporary, making it very difficult for fraudsters to guess.

• SMS as a channel is safer than others like email.

However, SMS verification is not without flaws. It can be vulnerable to attacks such as SIM swapping, where attackers use social engineering to persuade mobile carriers to transfer a user's phone number to a new SIM card under their control. Additionally, SMS interception is a concern, as techniques like SS7 attacks exploit vulnerabilities in the global telecommunications infrastructure to intercept messages.

That's why, if you're implementing SMS verification, you need to partner with a provider who is genuinely aware of these vulnerabilities and is actively working to mitigate them.

How to choose an SMS verification service?

Speaking of looking for an SMS verification service, let's take a look at the features and selection criteria to consider.

• Delivery rates and speed: ensure the provider can maintain high delivery rate at a fast pace so your users are not stuck waiting for their verification code.

• Global reach: the further the better, so choose a supplier with relationships with several carriers who can reach your current and future markets.

• Fraud prevention: select a provider that is able to reduce drastically fraud to keep your users safe and your bill low.

• Compliance: the provider should comply with all legal regulations that apply to your chosen industry and region.

• Flexible billing: are you able to adjust your billing based on your usage?

• Transparent pricing: check if your provider gives you complete transparency into the details of your pricing and what you’re paying for.

• Easy setup: the SMS verification API should be easy to download, integrate and activate, with clear documentation.

• Channels: does the provider rely solely on SMS or does it give you access to other channels such as WhatsApp, RCS or Viber?

• Customer support: chose a vendor with a reactive and helpful customer support that you can quickly communicate with.

The list could go on and on, depending on your business needs. We dive into this topic deeper in our best OTP service providers list.

How to get started with an SMS verification API?

Getting started is actually pretty easy. For instance, with Prelude API, it can be done in three steps detailed in our Quickstart guide, which can be completed in less than a day.

1. Choose your language

Our API offers a quickstart for SMS verification in many popular languages such as:

• Node

• Go

• Python

• Ruby

• Java

• PHP

• C#

2. Initialize the SDK

Initialize the SDK by pasting the snippet available in our quickstart guide.

3. Send and verify a code

With your phone number, you can call the authentication endpoint to receive a code by SMS, that you can then verify.

And that's it—you've successfully implemented SMS verification! Next, you can test it to ensure the integration is correct, add fraud signals to better prevent fraudulent activities, and connect your webhook to receive notifications when an OTP is sent or billed.

How to improve SMS verification using Prelude?

For a long time, the SMS verification sector was dominated by telecoms companies that overcharged their customers, gave them no transparency as to where their money went (much of which was wasted on fake traffic due to fraud) and whose customer service was hard to reach (and even harder to get a response from).

We know it because we’ve been there, and that’s actually what triggered us into founding Prelude.

Prelude is a powerful and easy-to-use API that lets you send OTP codes worldwide using the most appropriate channel depending on your user’s context. Businesses typically see a 20-30% increase in conversion compared with their previous provider, while saving 30-40% monthly. Prelude also detects and prevents fraud using algorithms trained on tens of millions of data points. That’s how we helped companies like BeReal to reduce their fake traffic by 95%.

So if you want to elevate your SMS verification performance, at a lower cost, you can start for free with Prelude or talk to our sales team!