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What is OTP in Credit Card Transactions? - All you should know about Credit Card OTP

Updated on: 14 Dec 2021 // 35 min read // Credit Cards
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What is OTP in Credit Card Transactions? - All you should know about Credit Card OTP

Credit Cards are payment mechanisms that have replaced cash payments. To be able to use a credit card correctly and with ease, it is vital to understand what are credit cards and what is OTP in credit card transactions.

Credit cards always have a predefined limit set according to the income and repayment capacity of the cardholder. Payments are made directly to the merchant by the bank for the purchases made for which the cardholder will be sent a monthly bill. 

Initially, when credit cards were introduced, the only way to ensure the user's authenticity was to verify the signature on the reverse of the card. Upon receiving the card, every cardholder had to sign on the reverse of the card in the presence of a bank official. Credit cards became popular over a period of time, and the loopholes for misuse of the cards were identified, and the security feature was enhanced by introducing PIN (Personal Identification Number), a four-digit number to verify the authenticity of the user. 

So then what is OTP in credit card transactions? Well, with the introduction of online transactions, it became necessary to enhance the security features to avert fraud. OTP or One-time Password is one such enhanced security feature. When online transactions are done using a credit card, the second level of authorisation with the OTP is required besides the CVV number, i.e., Card Verification Value Code). The safety aspect of OTP is that the number is sent to the registered mobile number and the email Id of the cardholder, and nobody else will have access to the number.

What is OTP or One Time Password?

With the growing popularity of Credit Cards, the instances of fraud also have been increasing. The banks are doing constant up-gradation of security features to avert such incidents. Initially, insertion of a PIN (Personal Identification Number) for both retail and online transactions was mandatory for authorising a transaction. PIN was an additional security feature for online transactions besides the CVV.  

Currently, the most popular security feature is the OTP. OTP or One Time Password is a six-digit number that will be sent to the registered mobile or the email id of the cardholder on initiating an online transaction. The OTP will be generated after the CVV number is entered. You will be sharing the OTP on the payment gateway by entering the number received on the registered mobile. The introduction of OTP reduced the risk level of online transitions, as only the cardholder has access to the number.

What is OTP in Credit Card transactions?

Now a two-factor authentication has been introduced for carrying out online transactions with a credit card. The first level security device is the CVV that is available on the reverse of the credit card and the OTP that will be sent to the registered mobile through SMS or to the registered email id of the cardholder. OTP generated for any transaction will be valid for only a few minutes and will not be accepted if entered after the stipulated time. The attempts given for entering a valid OTP is three, and the banks tend to block the credit after the 3rd attempt if the OTP is not a valid one.

Now having understood what is OTP in credit card transactions, read further to get an insight into the various transactions where OTP is required.

Online shopping: Online shopping is a regular feature in the present scenario; safeguarding the transactions is even more crucial to safeguard the transactions. CVV, however, is one such security measure that could reduce the risk of your transactions. However, if anyone has access to your card details, including the CVV, then the transaction could be risky as the chances of a fraudulent transaction are higher. OTP is an added security feature that can prevent such mishaps as the only person who can have access to the number will be the cardholder himself. The OTP is sent to the registered mobile number or the registered email ID, making it a private affair.

Loan repayments: Servicing the loan EMIs with a credit card is the best way to keep track of your loan payments. Opting for an OTP authorisation for the repayment transaction will make it secure by confirming that the cardholder initiated the transaction only and not a third party.

Automatic Utility bills payment: Regular payment of utility bills can be ensured by setting up automatic bill payment and making the payment through a credit card. You can keep track of the bills paid and ensure the safety of the payment by insisting on an OTP for dual authorisation of the transaction.

Benefits of credit card OTP

Credit cards' enormous benefits in terms of ease in payments clubbed with an additional level of security by way of OTPs. The credit card has become a popular tool for payments. Now, what is the benefit of OTPs in credit cards? Given below are the numerous benefits you can derive by conducting credit card transactions with OTP.

  • There is additional security for the transactions made online by requesting an OTP. Some of the banks provide the option to request an OTP by sending an SMS in the format prescribed by the banks and consists of the last four digits of your credit card number. The SMS should be sent from a registered mobile number. On receiving the SMS, an OTP will be generated and sent to the registered mobile number that should be entered to validate the transaction.
  • Multiple passwords will not be required to validate a transaction.
  • When you are on the secure page, you will be given three options to authorise a transaction in some online transactions. If you opt for the 'I want to generate OTP' option, an OTP consisting of 6 digits will be sent to your registered mobile number and your personal email ID. You will have to enter this OTP to authenticate the transaction.
  • In case a credit card falls into the wrong hands, and the person has access to the card number and the CVV, they still cannot complete an online transaction. This, because only the cardholder will have access to the OTP as it is sent to the registered mobile and the personal email ID of the cardholder.
  • You can reduce the risk of online transactions by opting for OTP to validate the transaction.

How to make credit card payments without OTP?

OTPs are restricted to online transactions. Frauds are common in online transactions wherein the fraudster need not be in possession of the card. All he/she needs to know will be the card numbers and the CVV number. To prevent such fraud, the concept of One Time Password was introduced. Only the cardholder will have access to the OTP as it is sent to the cardholder's registered mobile. But there are transactions that can still be made without an OTP. They are:

  • Offline transactions where you will need to swipe the card and the PIN will be the only security for authorising the transactions.
  • Online transactions on payment gateways do not insist on second-level security through OTP for completing a transaction.

Dos and Dont's of credit card OTPs

For an optimum level of security for online transactions using a credit card, opting for an OTP to authorise the transaction is highly essential. However, there are certain dos and don'ts while using OTPs for credit card transaction authorisation.

Dos

  • You should ensure that you are doing the online transaction on a website where the details shared are encrypted.
  • You should ensure that the firewall and antivirus software are updated before putting through an online transaction using OTP for credit card transactions as the security measure for validating the transaction.

Don'ts

  • You should not respond to emails from unknown email Ids asking for your credit card details.
  • You should not share your credit card number, expiry date, CVV number, OTP and PIN with anyone.

Frequently Asked Questions

✅What is OTP in credit card transactions?

OTP, i.e., One Time Password, which is the second level security, and CVV number for validating online transactions made with credit cards. OTP provides an optimum level of security as only the cardholder will have access to the OTP sent to the cardholder's registered mobile.

✅ What is OTP in credit card transactions?-Usage and benefits

While using a credit card for online transactions, you will have three options to validate the transaction on the secure page. If you opt for the option 'I want to generate OTP', a six-digit number will be sent to your registered mobile and personal email Id. The transaction can be completed only if you enter the valid OTP.

There are various benefits of OTP in credit card usage online. They are:

  • It spares you from the burden of remembering multiple passwords to authenticate an online transaction using a credit card.
  • It amounts to two-factor authentication, i.e., an OTP in addition to the CVV number. A transaction with an OTP is less risky.
  • Even if anybody gets hold of your card number and CVV, they cannot complete an online transaction without the OTP for which only you as the cardholder will have access to it as it is sent to your registered mobile number.

✅What is the time limit permitted to use the OTP for an online transaction with a credit card?

You will be given 10 minutes, within which you will have to enter the OTP to validate the transaction.

✅What is OTP in credit card transactions?- Security tips

The security tips that have to be followed while OTP is used for credit card transactions online are as given below:

  • Make sure that the online transactions are done on the website, where the details shared are encrypted.
  • Before initiating an online transaction with a credit card, ensure that the antivirus and firewall software are updated.
  • Do not respond to emails that originate from suspicious email IDs asking for your credit card details.
  • Do not share your credit card details like card number, expiry date, CVV number, PIN or OTP with anyone.

✅Can the credit card OTP be misused?

The chances of online fraud are very remote where OTP is used as the second level security measure as only the cardholder will have access to it. If you share the OTP with one who already has your card details like card number, expiry date, and CVV number, the OTP can be misused.

Update the mobile number without fail with your bank whenever you change the number to avoid the OTP being sent to the mobile number that is originally registered with the bank.