The German software giant made the investment under its SAP venture funds unit, the company said in a statement.
Financial terms of the investment were not disclosed.
Stockholm, Sweden-based iD2, which targets the financial, telecommunications and postal services industries, develops and sells "smart card"-based public key infrastructure software that enables users to be securely identified across the Internet. The company said its security software also helps ensure the high level of security and flexibility required to conduct electronic transactions over the Net.
With the growing amount of business and transactions conducted over the Internet, iD2's specialty in security software is also going to be more important, SAP said. Eventually, iD2, which is principally owned by network-equipment maker Cisco, telecommunications supplier Ericsson, news agency Reuters and investment banker Schroder Ventures, will support SAP's interfaces for combining its security systems.
The business software giant competes against Oracle, PeopleSoft and Baan in the enterprise resource planning market, providing software that automates a company's back-end system, which includes its financials, human resources and manufacturing business.
SAP said it will continue to make future investments through its venture funds unit, mainly in companies that develop unique Internet-based software products.