OTP in Credit Card Transactions – How It Works |Kotak Mahindra Bank

28 APRIL, 2023

Shopping online and paying bills has never been easier, thanks to the convenience of online banking and credit card services. They have revolutionised how we make online transactions and do shopping, providing comfort and security.

With just a few clicks, people can purchase items from anywhere in the world from their laptops or smartphones.

Online banking and credit cards offer a secure and convenient way to shop, allowing users to transfer funds easily, make payments, and manage finances.

By taking advantage of these services, shoppers can save time and money and make informed decisions when making purchases.

However, there are potential security risks when paying online through a credit card. Thanks to OTPs, thieves cannot steal money from a person, letting individuals do online transactions with complete security. So, what is the OTP in credit card transactions? Read on to find more.

What is OTP?

OTP’s full form is One-Time Password. It is a unique combination of four to six randomly generated numerical digits to authenticate online banking and credit card transactions. It serves as a temporary, secure PIN code sent to you via SMS or email, valid only for a single session.

What is OTP in credit card transactions?

OTPs help protect one’s personal information and financial data from hackers by greatly reducing the chances of identity theft. OTPs also act as an extra layer of security, confirming that it was indeed the person who initiated the transaction.

An OTP adds a layer of security above a user-generated static password. It is only valid for one transaction or login session. Nowadays, there is no credit card transaction without OTP.

How OTP works?

Suppose a person uses an online platform to buy a washing machine. Once they select the product and go to the payment page, they have to choose the payment method.

Consider that they choose a credit card. They must now input the card information. After entering the account information to complete an online transaction, they get redirected to a screen where they have to click “Get My OTP number.”

The bank sends (SMS/email) the OTP to the registered mobile number and email address. The person has to input the OTP to finish the authentication procedure, which is only valid for a short period. They have two additional opportunities to click on “Resend OTP” if they do not get the OTP immediately.

By entering the OTP, the cardholder can confirm that the legitimate cardholder is making the purchase.

OTPs are a simple but effective way of authenticating cardholders and can help reduce the risk of fraudulent activity on credit cards.

Can We Use a Credit Card Without an OTP?

It is always suggested to use an OTP to keep your transactions under the cover of an additional level of protection. However, a few methods exist for using a credit card without an OTP. The details for such cases are mentioned below.

Swipe the credit card at the POS terminals and enter the 4-digit PIN while making an offline purchase. The only assurance for approving the transactions will consist of your credit card PIN.
During online transactions, OTP is not considered for second-level security at the payment gateways to complete a credit card online transaction.
International credit card transactions without OTP can be possible when the payment gateway you’re using has permitted the same. Your credit or debit card can be used to make international purchases without an OTP authentication. This is because only domestic transactions are subject to the RBI's OTP authentication. Its directive does not regulate international payments. Therefore, the smart move in this situation is to either disable international transactions or selectively permit them when necessary.

Why is an OTP necessary for credit card transactions?

The importance of an OTP for credit card transactions cannot be underestimated. Today, an OTP provides the user with a layer of security and assurance that their information is secure and their transactions are not vulnerable to fraud.

By providing an extra layer of authentication, OTPs ensure that the person making the transaction is the rightful owner of the credit card.

This extra layer of security helps protect the consumer, the merchant, and any other involved parties. OTPs ensure that the transaction is legitimate and that the user is who they say they are, preventing fraud and unauthorised access.

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How Are Credit Card Transactions Secured in India with OTPs?

Digital payments are widely available in India and have encouraged cashless transactions. "Faceless, Paperless, and Cashless" is one of the objectives of the Government of India's flagship initiative, Digital India. Credit cards and debit cards, along with UPI, have a significant role in this initiative.

Credit card transactions cannot be completed without an OTP. The bank sends a temporary OTP of four to six digits to your registered phone number to authenticate a credit card transaction.

You must input the OTP into the payment gateway when the message pops out on your screen. It is typically valid for up to 8–10 minutes. The bank approves the credit card transaction once you have validated the OTP. The bank or credit card provider will block your credit card when you input the incorrect OTP more than three times. This is to ensure that your credit card remains safe in case of theft or loss.

How to Use Credit Card OTPs? - Dos and Don'ts

The Dos and Don'ts of using credit card OTPs have been discussed below.

Dos of Using Credit Card OTPs

The website on which you are entering the OTP must use reliable and secure encrypted communications. So the best thing is to make sure the website begins with HTTPS://.
Using a firewall and antivirus software that is up to date is essential while using a credit card OTP.

Don'ts of Using Credit Card OTPs

Responding to emails that request personal information, such as your credit card or bank account number, is never a good idea.
Your credit card information, including the CVV number, PIN, expiration date, and OTP, should never be shared with anybody.

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Benefits of Using an OTP For Credit Card Transactions

Let's discuss the importance of OTPs and how a credit card owner might profit from them.

One-Password Solution

One-password solutions are offered to customers through OTPs. They remove the challenge of remembering passwords.

Additional Layer of Protection

No one can use your credit card unless they enter the OTP sent to your registered mobile number or email address.

Aids in Keeping You Alert

When someone tries to use your credit card, you’ll receive an OTP to authorise the transaction. In this case, notify the bank immediately and block your card.

Simple Process

Using an OTP to validate your credit card online transaction is a simple process that takes a few seconds only.

Pros of using OTP in credit card transactions

Using OTP in credit card transactions has numerous benefits; some of them are:

OTP provides an extra layer of security to credit card transactions by ensuring that only the cardholder can access their account information and make a transaction.
OTP eliminates the possibility of identity theft, as OTP is sent to the cardholder’s mobile number and email ID.
With an OTP system, banks can ensure that confidential information is only seen by authorised personnel, reducing the risk of a data breach.
Since OTP does not involve a password, there is no need for customers to remember lengthy passwords, helping reduce time and frustration during transactions.
Even if a credit card gets stolen and the user has access to the CVV and card information, they can still not make an online purchase. Since the OTP gets delivered to the cardholder's registered mobile number and email address, only the cardholder can access it.

Cons of using OTP in credit card transactions

OTPs have some flaws despite their advantages.

OTPs are vulnerable to user error. If a cardholder mistypes a single character of the OTP, then the transaction gets rejected.
OTPs are time-sensitive, meaning the transaction gets cancelled if a user does not enter the code within the designated period.
A weak mobile signal, a terrible internet connection, or both may prevent consumers from receiving their OTPs. This might be a significant issue, particularly if they live in a spot with poor signals.

How to secure credit card transactions?

Credit cards have become an invaluable tool for safe and secure online transactions, with many banks offering attractive rewards and protection against fraud.

However, to further enhance the security of the best credit card in India, consider the following advice:

Avoid revealing the data of the credit card in public. Everyone has the right to decline if a cashier or store clerk asks them to give them their credit card information since once they have it, anybody can use it.
Be cautious while entering credit card information Before entering any information, users must ensure that they are on a secure website or app.
Never save credit card information on apps or websites. Criminals or hackers might steal credit card information if a website or app gets hacked.
Keep an eye on the notifications and statements of the credit cards. In this manner, you can track any unlawful transactions.
Never reply to emails or texts that request credit card information. These are often “phishing” scams, in which fraudsters deceive people into entering their credit card information on a malicious site.

Uses of OTP When Using a Credit Card

All of your financial and credit card online transactions have an additional layer of protection due to the 4 or 6-digit OTP number. Any transaction carried out without an OTP is problematic since it removes the additional layer of protection that your card has.

Transactions Requiring OTP For Credit Card Payments

You need OTP for payments through credit cards for the following transactions.

Online Transactions

We all enjoy shopping online these days. As a result, using a credit card to make purchases has also become widely popular. One security feature on your credit cards is the Card Verification Value (CVV), which lowers the risk of fraudulent transactions. But if someone has your card details, this level of security can easily be compromised.

Therefore, OTP can avoid such occurrences because the bank only shares it on the customer's registered email address or mobile number, making your credit card online transaction more secure and confidential.

Payment of Utility Bills

Using your credit card to pay for your utilities is a simple method to manage your spending and make timely bill payments. Utility bills can be regularly paid with a credit card by using an automated bill payment feature.

Nevertheless, it is essential to remember that credit card payments require an OTP for authorisation.

Repayment of Loans

Repay your college loans, mortgages, or car loans using credit cards. EMI Payments help you to monitor your monthly repayments. The OTP feature helps confirm that the payment is approved by the individual and not a third party.

Conclusion

Credit cards are a safe, reliable, and convenient payment method for online transactions, provided customers take the necessary precautions to protect their sensitive personal and financial details.

By understanding how the best credit card in India work and ensuring only to use trusted websites, customers can confidently make secure online purchases with their credit cards.

What is OTP? Its Meaning, Benefits & Importance in Credit Card Usage