Does vaccine passport give Apple an edge in payments?

With merchants increasingly required to check customers' COVID-19 vaccination status to provide service, some are seeking to combine that task with payment acceptance. And Apple has beaten banks to the punch.

An iOS 15 update, released this week to developers, allows users to download and store verifiable health records, including COVID-19 vaccination cards and test results, inside Apple's Health app. This sets groundwork for retailers and other organizations to bring vaccine validation directly into the checkout process — putting Apple in a position that displaces banks.

The implications go well beyond the idea of flashing a vaccine card before picking up a takeout order. Apple's technology could potentially integrate with much larger expenses, such as hospital bills or college tuition, which could then be completed with Apple Pay or the Apple Card.

"At Apple, that vaccine credential can be married to a payment API, and any merchant in health care or any venue that requires proof of vaccination will prefer Apple Pay," said Richard Crone, a payments consultant.

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"Tuition and fees can be included as part of a multi-factor biometric proof of vaccination at a university, for example," Crone said. "How does any payment company compete if they don't have this?"

If Apple gains an edge here, it's because few companies in the financial services industry are trying to marry vaccine status checks with payments.

"For now we don’t have a good method of proving or validating vaccination status," said Avivah Litan, a vice president and analyst at Gartner Research. "As a result, what we are seeing is that even in places where proof of vaccination status is required, hosts and other receptionists don’t even bother asking users to take out their cards."

There's an option to share these health records with third-party apps such as those from airlines, venues and other businesses. Additionally, consumers can choose to store COVID-19 records as a "vaccination card" in Apple Wallet to present elsewhere.

Apple's update gives it a potential early-mover advantage to embed vaccine passports, coronavirus test results and other health passes in a payment app, though the technology giant could face regulatory pushback and will need to proactively seek out partners, as it did for Apple Pay when the mobile wallet originally launched.

"Apple seems to be providing a [feature] for proving vaccination status that is more secure, private and reliable than flashing a cheap piece of easily-forged construction paper at a restaurant host or hostess, travel screener or other third party requesting such proof," Litan said.

Apple did not provide a timeline for universal availability of its vaccine passport feature inside Apple Wallet, with the company saying that will be released "soon." The vaccine or test status will be available as part of the Apple Pay authentication process. The vaccine or test status vaccination card will not be visible until the user has authenticated with Face ID, Touch ID, or their passcode be available as part of the Apple Pay authentication process.

The verifiable health records will be based on specifications for SMART Health Cards, an open source digital version of health records. SMART Health Cards are available to most of the U.S. health care technology vendors and for people who have received vaccinations at pharmacies including Walgreens, CVS and Walmart. Organizations that support SMART Health Cards can add a button to allow users to download vaccine information to Apple's Health App and Wallet. There's an equivalent standard in the U.K. that can support the Apple feature, according to MacRumors, a site that tracks Apple news.

The ability for Apple's system to "take off" is predicated on Apple users trusting the feature's data protection and privacy, and requesters of vaccination status being able to easily validate a consumer’s status, Litan said. If that happens, then many other mobile apps should follow from other providers, including other technology companies, health care companies and maybe even government agencies, she said.

There are some projects underway globally to provide prepaid cards as incentives to get vaccinated, and Mastercard is partnering with the International Chamber of Commerce on health pass technology. But most digital payment methods aren't linked to vaccination or negative test status, requiring businesses to manually check vaccination compliance in venues where that's required.

There are challenges to Apple's strategy. While Apple has demonstrated the capability to enable digital health passes as part of a digital wallet, there are questions about data concerns surrounding compliance with the Health Insurance Portability and Accountability Act, according to Inci Kaya, a strategic advisor for health insurance and payments at Aite-Novarica.

More technology companies will have to be involved in the process to manage coronavirus vaccine and test data at scale in a standardized manner, Kaya said.

"What is the governance structure in place for this type of offering? Who is on the hook if something goes wrong and a million individuals’ medical records get leaked inadvertently, violating HIPAA? Is that going to be Apple? Participating airlines or businesses?" Kaya said.

Even in light of these concerns, Apple's scale pressures financial services rivals to partner with it to bring new digital services to merchants and consumers. Apple is already able to dictate the terms for inclusion in its mobile wallet and App Store.

"A bank doesn't have a chance of competing if it's not supporting a registered credit or debit card inside Apple Pay," Crone said. The controversy over Apple's 30% app store fees for developers can be partially assuaged if there's easy access to a health pass as part of the user experience, he said.

About 47% of Americans own an iPhone, according to Statista; and Apple's share of the global wearable technology market is about 30%. Apple reports 85% of U.S. merchants support Apple Pay.

Apple earns GlobalData's top score in wearable technology, with the research firm citing Apple's success with its smartwatch. In a statement, Rupantar Guha, associate project manager for Thematic Research at GlobalData, said Apple only requires minor redesigns to its wearable products to reinforce its dominance in the smartwatch or wearables market.

"Merchants have always been willing to pay a premium for a payment service that reduces clicks and abandonment rates, increases sales or reduces fraud," said Crone, adding that Apple's model of adding consumer technology that can include access to Apple Pay, Apple Card or the technology company's pending buy now/pay later service. "Buy now/pay later requires being at the right place at the right time, at the virtual physical point of sale, right before completing checkout and payment, without slowing down the process."

The expansion of the Apple Pay ecosystem is a step forward in creating a highly functional, low-friction, "sticky" payment capability that can be used just about anywhere for any purpose, according to Thad Peterson, strategic advisor for retail banking and payments at Aite-Novarica Group.

"As that functionality increases the value for consumers, further steps into other banking services become increasingly incremental and less of a leap from traditional banking activity," Peterson said.

Institutions such as Bank of America have used Apple Watch to add controls for B2B payments and dozens of other banks and financial institutions have supported Apple Watch for budgeting, card controls and finding the best incentive offer.

Banks have long shown a willingness to pay Apple's fees in exchange for access to Apple's platform and audience.

In more recent years, Apple Pay's huge enrolled base of users has served as a way to speed credit card issuance through a partnership with Goldman Sachs that powers credit, prepaid, peer-to-peer and debit through a single wallet. Apple's services also include streaming content and its app store, giving it a way to pair financial services with nonfinancial products in a way that's not easy for banks to replicate.

"Retail banking has always been built on the transaction account, the direct deposit account or current account, and by expanding the functionality of its platform, Apple is increasingly in a position to capture a larger share of transaction volume and with it, a larger share of customer activity and loyalty," Peterson said.