Why One-Time Passcodes Fail: Restoring Trust in OTP Authentication

Fraud is exploiting the authentication gap in call centers

One-time passcodes (OTPs) remain one of the most widely used authentication methods because they're simple, familiar and convenient. But as fraud tactics evolve, organizations face a growing challenge: ensuring OTPs reach legitimate customers and not fraudsters who have compromised a phone number. According to TransUnion®, account takeover (ATO) was the leading cause of fraud loss cited by businesses in 2025 — and even still, fraudsters are increasingly targeting phone-based authentication through SIM swaps, call forwarding and unauthorized number reassignment. This guide explores why traditional OTP strategies are becoming less effective and what fraud, identity and authentication leaders can do to strengthen security without adding unnecessary friction.

Why OTP authentication matters now

Organizations continue to invest heavily in authentication, yet many still rely on OTPs as a primary or secondary verification method. While the passcode itself remains secure, the phone receiving it may not be. Fraudsters increasingly exploit weaknesses at the device and phone number level, enabling them to intercept authentication messages and gain unauthorized access to accounts.

The business stakes are significant. Consumers expect security, and failures in authentication can erode trust, increase fraud losses and drive customer attrition. At the same time, organizations must balance robust protection with seamless customer experiences, making it critical to identify strengthen OTP-based authentication without creating unnecessary obstacles for legitimate users.

What the guide covers

• Why phone takeover tactics, such as SIM swaps, call forwarding and unauthorized number reassignment, are undermining OTP authentication and increasing account takeover risk.
• How common OTP alternatives often fail to address the root cause of authentication fraud — and how phone-level risk assessment can provide a more effective layer of protection.
• A practical framework for using real-time phone risk signals to identify compromised phone numbers, fortify authentication and reduce fraud across digital and call center channels.

Who should read this guide

Designed for leaders responsible for fraud prevention, operational performance and customer experience, including:

• Fraud leaders focused on reducing account takeover losses
• Identity and authentication strategists
• Digital risk and fraud prevention teams
• Customer identity and access management professionals
• Contact center and customer experience leaders managing authentication processes across channels

Key takeaways

• OTPs remain an important authentication tool, but organizations can no longer assume the phone receiving the code belongs to a legitimate customer. Phone-level compromise is becoming a key driver of account takeover fraud.
• Protecting OTP authentication requires identifying risky or compromised phone numbers before a code is sent — leveraging authoritative phone and mobile network signals with little to no added customer friction.
• A stronger OTP strategy applies enhanced controls to high-risk interactions, helping reduce account takeover and new account fraud while preserving customer trust and experience.