How Apple Pay is Changing the Way we Spend

By Zachary Skoutas

Preparing to check out, I barely noticed the total before Apple Pay had already approved the transaction. No cash, no card – a double click and a quick glance was all that was needed to complete my purchase.

These days, the process of making a digital purchase is incredibly simple. Before Apple Pay and similar wallet services like Amazon’s Buy Now emerged, online retailers would require that a person enter their shipping address, billing information, and contact details before charging a card. Now, Apple Pay saves these preferences, reducing the time it takes to complete standard transactions.

Surveys have indicated that 42% of U.S. consumers are using digital wallet systems to make everyday purchases. This percentage is even higher among Gen Z, where 85% of those polled reported making payments with their phones. This statistic is not surprising as Gen Z generally prefers the convenience of a streamlined payment process and may be less concerned about data and privacy than other generations.

Why is this a problem? Research indicates that a sizable portion of credit card debt can be attributed to the accessibility of “frictionless” payment methods like Apple Pay. A 2023 paper in the journal Information Systems Research found that consumers charged, on average, 9.4% more to their credit cards after linking their accounts to a frictionless payment system. Researchers estimated that approximately $50 billion in U.S. credit card debt (out of $1.13 trillion in total consumer credit card debt) stems from the convenience of digital wallet platforms.

This increase in spending activity makes sense. Psychologists teach us that physically handing over money makes the purchase feel more tangible. When cash leaves your hands, the cost becomes an absence, not just a number. For decades, economic theorists have believed that individuals make financial decisions by mentally categorizing their expenditures and losses. Richard Thaler coined the term “mental accounting” back in 1985 to explain how consumers manage their budgets by continually evaluating the utility of their purchases relative to their costs. The issue with digital wallet systems is that they weaken the evaluative mechanisms at play in a typical purchasing experience.

Although these patterns are not entirely new and have been a feature of modern consumer spending since the advent of credit cards in the 1950s, platforms like Apple Pay seem to be distancing people more and more from their purchases. Studies have shown that the more we separate ourselves from the physical process of paying, the more we spend. When credit cards became popular, average U.S. household spending increased from $10,000 to $35,000 annually. In fact, the fact that people are more likely to increase their spending when they are not paying with cash is the very reason why casinos first adopted chips for gambling. Nowadays, paying with a physical credit card may be the equivalent of what has been called the “pain of payment” described by economists, a moment of awareness of spending behavior that Apple Pay is designed to minimize through contactless transactions.

It is no secret that digital wallet systems have significantly decreased the amount of time it takes to make a transaction. When completing an online purchase the traditional way, a consumer would need to add an item to their cart and enter their billing and shipping preferences, a process that normally takes a few minutes. Frictionless payment systems reduce the check out process to under 5 seconds.

So how can we become more aware of our spending practices? The solution isn’t as easy as deciding to pay with cash. After all, many businesses these days operate on a cashless, card-only basis, and wallet systems have become heavily integrated into digital marketplaces. The good news is that there are many personal finance apps that can help track frictionless spending. These apps can categorize purchases and even send users email alerts when they have gone over budget. While we cannot fully separate ourselves from digital payment systems, we can be more intentional in how we use them. Even taking small pauses before double clicking can go a long way in making costs feel real again and allowing consumers to preserve a sense of control over their money.

Sources:

1. https://www.jstor.org/stable/183904

2. https://www.fastcompany.com/91248968/study-finds-hidden-psychological-benefits-of-paying-with-cash-instead-of-apps

3. https://medium.com/@etchuk/here-s-why-apple-pay-will-make-you-spend-more-701e9d6b9e85

4. https://www.npr.org/2024/04/07/1241841908/apple-pay-phone-credit-spending-frictionless-payments

5. https://www.apa.org/gradpsych/2013/09/spending

6. https://www.ey.com/en_us/insights/payments/how-gen-z-is-changing-the-payments-landscape