Difference between an Identity Provider and a Directory Service?

Both an Identity Provider and a Directory Service can function as a central platform with identity data for user authentication. An Identity Provider (IdP) is more capable and can be used in cloud environments as well. A Directory Service is designed primarily for internal IT environments.

What is the difference between an Identity Provider and a Service Provider?

An Identity Provider (IdP) authenticates users and provides identity data to applications and services. Such an application or service is called a Service Provider (SP) in this context. The IdP handles user authentication to the SP.

Identity Provider (IdP)

Q: What is an Identity Provider?

An Identity Provider (IdP) is a system that authenticates users and confirms their identity for applications or services. An IdP manages login credentials and typically supports Single Sign-On and Multifactor Authentication.

What Is an Identity Provider?

An Identity Provider (IdP) is a centralized platform that can verify users' digital identities. Applications that are connected to an IdP through a trusted relationship can effectively delegate user authentication to that Identity Provider. Users sign in to the IdP and, upon successful authentication, are granted direct access to the connected applications. The IdP can also supply additional information to support user authorization.

Why Is an Identity Provider Important?

The key advantage is that users do not need to sign in to different applications with different credentials. A single set of login credentials, typically a username and password, is registered in the IdP and used to access multiple connected applications. This makes the Identity Provider a key building block for Single Sign-On (SSO), because authentication can be configured so that the user logs in only once at the start of a session; access to other applications then follows automatically. This is not only user-friendly but also more secure. When users log in only once, it is easier to require a strong password and Multifactor Authentication (MFA).

In addition to SSO, an Identity Provider is important for federation, which allows a single set of credentials to access multiple partner domains. Employees from partner organizations, such as multiple schools within a single education group, can use their own credentials to access each other's applications and data through the Identity Provider.

Identity Provider and Service Provider

Before explaining how an Identity Provider works, it is useful to clarify the term Service Provider, since the two appear together frequently:

The Identity Provider is the platform responsible for verifying a user's identity and providing authentication data to other systems. It manages user accounts and their login credentials, such as passwords, as well as multifactor authentication or biometric data.
A Service Provider (SP) is an application or service that uses an Identity Provider to verify users. The SP, therefore, relies on the IdP for authentication and can grant users access based on it. The term Service Provider can be confusing because, in the context of authentication, it actually consumes a service from the Identity Provider.

How Does an Identity Provider Work?

How do you use an Identity Provider to sign in easily to applications or services, and the Service Providers? To illustrate Single Sign-On, the example below shows access to two applications in succession.

Authentication With the Identity Provider for Application 1

A user attempts to access Application 1, also called SP 1.
Application 1 detects that the user is not signed in and sends an authentication request to the Identity Provider, IdP.
The user is redirected to the IdP sign-in page and enters credentials such as a username and password.
The IdP verifies the user's identity and, if successful, generates an authentication token, an encrypted digital access credential.
The user is routed back to Application 1 with this token.
Application 1 validates the token and grants access.

Access is therefore granted indirectly. A trust relationship exists between the Identity Provider and the Service Provider, so the application grants access based on the authentication token.

Access to Application 2 with SSO

The user then attempts to access Application 2, SP 2.
Application 2 also detects that the user is not signed in and sends an authentication request to the IdP.
The IdP sees that the user already has an active session from Application 1. Therefore, the IdP does not prompt for credentials again.
The IdP then generates an authentication token for Application 2.
Application 2 validates the token and grants the user access.

The user is now signed in to Application 2 without having to sign in again. SSO is not a mandatory function of an Identity Provider; signing in again with the same credentials would also be possible, but an Identity Provider is ideally suited to enable this capability.

Because Identity Providers must interoperate seamlessly with many applications, communication uses standard protocols. SAML (Security Assertion Markup Language) or OpenID Connect is used to exchange authentication tokens. To send authorization data from the IdP to applications, protocols such as OAuth 2.0 and JWT, JSON Web Token, are used.

Examples of Identity Providers

Two well-known examples of Identity Providers are Entra ID and Google Identity Platform:

Microsoft Entra ID, formerly Azure Active Directory, is a cloud Identity Provider that delivers Single Sign-On (SSO), Multifactor Authentication (MFA), and federation with Active Directory Federation Services (ADFS). Entra ID integrates seamlessly with Microsoft 365, Azure, and enterprise applications. This Microsoft Azure identity provider supports OAuth 2.0, OpenID Connect, and SAML.
Google Identity Platform provides authentication and authorization services and supports SSO and MFA. It gives users with Google accounts secure access to Google Workspace, mobile apps, and web applications. This IdP supports OAuth 2.0, OpenID Connect, and Firebase Authentication.

In addition, modern IAM platforms typically include a built-in Identity Provider. HelloID also offers customers a native Identity Provider with MFA and SSO capabilities.

Identity Provider Within Your IAM Solution

An Identity Provider generally plays a specific role within a broader Identity and Access Management (IAM) environment. The IdP is important for verifying users and providing authentication and authorization information, while an IAM environment augments these capabilities with additional features. The IAM platform also manages identity and access data throughout the entire identity lifecycle. This starts with onboarding and continues through internal transfers to new roles and eventually offboarding from the organization. Below is a brief description of how an IAM platform like HelloID uses an Identity Provider and adds value.

Access Management

Many customers today use Microsoft 365 as the basis for their productivity suite. This also means that AD is used as the directory service or Entra ID as a full Identity Provider. In that case, an IAM platform like HelloID is not used directly for access functionality. It is used for broader management and governance. The paragraphs below explain this in more detail.

At the same time, there are still scenarios where a native Identity Provider within the IAM platform is preferred. For this, the HelloID Access Management module provides a built-in Identity Provider that delivers SSO and Multifactor Authentication for connected applications. In that scenario, every user has a personalized portal with tiles for their applications, which can be launched with a single click. This HelloID SSO portal can also be embedded easily as a widget in a customer's existing intranet. Using the Access Management capabilities, we also provide federation to facilitate collaboration between customer organizations and to support migration scenarios.

Provisioning

Data in an Identity Provider such as Entra ID can, of course, be managed directly on the platform by an IT administrator. However, this quickly becomes unmanageable when an organization connects numerous applications to the IdP with hundreds or even thousands of users. This is especially true because it is not only about granting accounts and access rights once. That data must be kept continuously up to date.

We simplify administration with the HelloID Provisioning module, which uses Attribute-Based Access Control (ABAC) to ensure every employee is automatically assigned the correct accounts and access rights at all times. The platform queries a source system such as the HR application. It contains employees' current roles, departments, and locations, and HelloID automatically determines the required accounts and entitlements based on that data. They are then automatically propagated to the Identity Provider and to other target systems for each employee. Not every platform is connected to the IdP, and access information is also stored in other target systems.

Your Identity Provider, therefore, plays a critical technical role in your Single Sign-On and, in turn, the authentication of users and the authorization to target systems. The Provisioning module then ensures that, within large and complex organizations, all settings are managed in a controlled, auditable way.

Service Automation

A similar principle applies to the HelloID Service Automation module. Provisioning ensures that users are automatically provided with accounts and rights wherever possible. In addition to automatic provisioning, individual requests are always needed. For example, someone may need an additional application license to work temporarily on a project. Such a change could be implemented by second-line administrators directly in the Identity Provider and other target systems. With the Service Automation module, helpdesk staff or managers can perform such changes themselves. An employee can also complete some changes through the self-service portal. These changes often affect the Identity Provider among other systems, but they are executed far more efficiently and in a more user-friendly way. All changes are also easier to trace afterward. Security is maintained because changes are executed through HelloID, and no one works directly in the target systems.

Governance

Within HelloID, we provide comprehensive reporting functionality, which we combine with the HelloID Governance module. This allows us to trace all access changes easily and evaluate account and access management monthly, adjusting where necessary. Regular reviews reveal backdoors and inconsistencies and keep the roles model current. In this way, IAM functionality is fully embedded in the Plan-Do-Check-Act cycle, a key requirement in ISO 27001 and related security standards.

Want to Learn More About the Role of an Identity Provider?

Want to learn more about the role of an Identity Provider and its use within HelloID? The Access Management page on our site provides a complete overview of the functionality and options.