A one-time password is a password that can be used once and then expires. One-time passwords are often referred to by their abbreviation OTP and are sometimes also called OTP codes.
A one-time password usually consists of an alphanumeric OTP code (letters and numbers) and is generated for a single login session. Once you’ve logged in with a one-time password, it expires and cannot be used for the next login session.
One-time passwords are often used for two-factor authentication in areas such as online banking, but they are now increasingly being used by companies, too. In the first step, you enter your usual login credentials. Then you generate a dynamic one-time password, which is also required for OTP authentication, using a tool such as a security token.
This additional step ensures much greater security. If unauthorized users gain access to your usual password during this login process, they still won’t have the dynamic one-time password, which is generated only as needed for a single login. For this reason, more and more online services are beginning to use two-factor authentication, especially when it comes to sensitive data.