SMS OTP is still the default second factor for a lot of banks, retailers, and marketplaces because every phone can receive a text. But that reach hides three separate questions: does it convert, what does it cost at scale, and how much security are you actually getting?
That is the useful frame for passkeys vs SMS OTP. Not hype. Not “what’s newer.” Just whether one method gets more users through login, costs less per successful authentication, and holds up better against phishing.
For most returning users, passkeys have a structural advantage on all three.
Conversion is really about ceremony length
The main passkeys conversion rate advantage is simple: there is no code ceremony.
With WebAuthn passkeys, the device prompts the user, they confirm with biometrics or device PIN, and the session is established. With SMS OTP, the user has to wait for the message, open it, switch context, read the code, type it, and hope delivery worked in the first place.
Every step in that wait-read-switch-type flow is a place to lose users. And many of those failures are silent in standard analytics:
- the code arrives late
- the code lands in the wrong app context
- the user mistypes it
- retries inflate friction before the backend sees a clean completion or failure
That is why “SMS reaches everyone” is not the same as “SMS converts well.” Reach measures coverage. Conversion measures completed sessions.
If you are comparing passkeys security vs SMS or debating a passkey adoption strategy, this distinction matters more than most teams expect.
Cost is not per message, it is per successful login
SMS OTP authentication cost is often underestimated because teams look at carrier pricing instead of completed outcomes.
The article’s point here is practical: SMS has a per-message fee on every send, including retries. Those fees range from fractions of a cent in the US to well over USD 0.30 in some markets. Then add support load, fraud exposure, and the infrastructure around delivery and verification.
Passkey logins do not carry a per-authentication messaging fee. So the more traffic you have, and the more countries you operate in, the more the cost gap widens.
A fair comparison looks like this:
| Axis | SMS OTP | Passkeys |
|---|---|---|
| User steps | Wait, read, switch, type | Confirm on device |
| Marginal auth cost | Per-message fee, plus retries | No messaging fee |
| Failure pattern | Delivery and transcription issues | Device / platform support issues |
| Security model | Human-readable code | Domain-bound cryptographic credential |
This is also why login funnel analytics matter. If SMS needs retries to produce one completed login, the real cost is not the headline message price.
Security is where the gap is clearest
Phishing-resistant authentication is the strongest technical argument for passkeys.
A passkey is bound to the exact domain. There is no shared secret to steal, copy, or replay on a phishing site. SMS OTP is the opposite: a human-readable code that can be phished, intercepted, or abused via SIM-swap attacks and malware.
So on passkeys security vs SMS, the difference is not subtle. SMS may still be useful operationally, but it remains a weak factor against modern phishing.
That matters even more in regulated environments. The article points out that markets like the UAE are already phasing out SMS OTP for banking.
The right rollout is not “replace SMS overnight”
The common mistake is the migration trap: a team sees the conversion, cost, and security upside of passkeys and decides to rip out SMS immediately. That usually backfires because some users still depend on SMS for first contact, older devices, or non-ideal app/browser environments.
The better SMS OTP fallback strategy is:
- make passkeys the primary option
- keep SMS OTP as an explicit fallback
- segment by OS, browser, and device class
- track method switches and cost per successful login
- shrink SMS only when the remaining users have a clean alternative
This is where authentication observability becomes essential. Most stacks only record “logged in” or “did not log in.” That is not enough. You need per-method funnel visibility from method chosen to session_established, plus segmentation by environment.
Without that, you are guessing. With it, you can make decisions like: passkeys outperform SMS on iPhone Safari, but SMS still covers a legacy Android segment we cannot strand yet.
Corbado is a passkey observability and adoption platform for large B2C enterprises.
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