Okta plans to acquire fellow identity verification and management firm Auth0 for $6.5bn in the latest sign that the market is starting to consolidate.

Initially, Auth0 will maintain its own identity, operating as an independent business within Okta before it is gradually integrated into the San Francisco-headquartered firm.

In return for its billions – which will be shifted in the form of a stock transaction deal – Okta will gain Auth0’s 9,000 enterprise customers spread across more than 70 countries.

Okta will also get its hands on Auth0’s platform for authenticating, authorising and securing access for applications, devices and users.

These capabilities dovetail with Okta’s existing identity solutions, which it sells to more than 10,000 organisations including T-Mobile, Nordstrom, Siemens, and Slack.

Okta is betting on its investment boosting a chance of gaining a larger slice of the identity market, which it says is valued at $55bn. The acquisition is expected to close in the quarter ending 31 July 2021.

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“Combining Auth0’s developer-centric identity solution with the Okta Identity Cloud will drive tremendous value for both current and future customers,” said Todd McKinnon, CEO and co-founder of Okta.

“In an increasingly digital world, identity is the unifying means by which we use technology – both at work and in our personal lives. With so much at stake for businesses today, it’s critical that we deliver trusted customer-facing identity solutions.”

The identity market is exploding

The deal comes on the back of a proverbial explosion of identity-verification companies in recent years. The growth of the sector has been fuelled by the introduction of regulations such as the European Union’s Payment Service Directive (PSD2) and a smattering of know-your-customer rules across the globe, making the sector particularly lucrative. The rising risk of fraud, identity theft, money laundering, and other financial crimes has also driven the growth of the sector.

Identity verification tools are today used across the board, from remotely onboarding users on apps to authorising digital payments. The solutions in the market often use combinations of biometrics – such as fingerprint scans and facial recognition software – and document scanners to verify users’ identity. These solutions can also help enterprises spot suspicious activity on a network.

It is against this backdrop that the Okta-Auth0 acquisition marks a further consolidation of the identity verification market. On Wednesday Munich-based IDnow made its second acquisition in six months after it snapped up digital and offline identification firm identity Trust Management AG for an undisclosed sum. And in January 2020 London-based AI identity startup Onfido acquired US firm Aviata.

But big tech players are also cutting out a slice in the market for themselves. This week Microsoft announced a range of enterprise identity tools, including for managing identities in its Azure cloud platform.

Regulators have also recognised the growing need for identification solutions. In September 2020, UK Department for Digital, Culture, Media & Sport, along with the Cabinet Office, announced that it was exploring digital identities as a means for individuals to securely verify their identity online.

Read more: The business of authentication: How Auth0 is preparing for the future of logging in