Transaction Authentication Number (TAN) - Definition, What is Transaction Authentication Number (TAN), Advantages of Transaction Authentication Number (TAN), and Latest News - ClearTax (2024)

Introduction

A transaction authentication number (TAN) is a one-time code used in the processing of online transactions. Used in America, a TAN represents an additional layer of security beyond a password to securely log into an account or conduct a transaction. Merchants and payment card companies have an incentive to improve transaction security, as better security reduces the possibility of frauds occurring.

What is Transaction Authentication Number (TAN)?

Organizations, such as the Payment Card Industry Security Standards Council (PCISSC) create standards that payment card acquirers and processing companies must follow to encrypt the card information at the point-of-interaction (POI) and, later, decrypt and process the transaction. TANs are a way for financial institutions to reduce the possibility of fraud.

They are single-use numbers and provide two-factor authentication for a transaction. The first step of the authentication process includes a password or a personal identification number (PIN) to access the account.

Further, the second level of the process is TAN. Typically, financial institutions provide a list of passwords or passphrases that are valid for authentication. TAN remains valid for single use.

Why Transaction Authentication Number (TAN) is Important?

TANs are mostly used to verify online transactions. When an entity begins a transaction, TAN will be sent via SMS, email, or some other method. The mode of delivery will be authenticated beforehand through an interaction. For example, a bank may send a text message to make sure that the registered mobile number is valid.

During the course of a transaction, the user will receive a text message with TAN, which must be entered in a field on the web form. Upon entering the matching code, the transaction will be processed.

The use of TAN is getting widespread from financial institutions to other sectors as well. For example, the two-factor authentication process of email accounts includes a user to enter the password, followed by the transaction authentication number. The number is retrieved via text message, email, or a telephone call.