How Apple Pay Gets People to Part With More of Their Money

Mobile-payment services are the next step in dulling the agony of spending.

Adrees Latif/Reuters

Last week, Amazon introduced a program that represents the next notch on retailers’ asymptotic approach toward a perfectly seamless transaction. One element of the program is a collection of branded ordering buttons that customers can stick to surfaces in their home—press the Tide button on your washing machine to order more detergent, for instance. The brilliance of the buttons isn’t just that they offer up a transaction right when consumers run out of a product—it’s also that they diminish the discomfort that usually kicks in when you part with your money.

“The pain of paying” is a phrase behavioral economists use to talk about the differing levels of inhibition consumers feel when they pay in different ways—cash, for example, makes a transaction more painful than a credit card, because you can see your money evaporating before you.

Mobile phones might not embody quite the consumerist anesthesia of Amazon’s buttons, but from a retailer’s perspective, they have the advantage of already having insinuated themselves into every public and private space. Between Apple Pay, Google Wallet, and (soon) CurrentC, phones are the site of an increasing number of transactions—and they’re the next step in inducing consumers to spend more by directing their attention away from transactions. Apple Pay, for example, is a smooth payment method: Once credit-card information has been entered into an iPhone app, customers simply unlock their phone with a thumbprint in the vicinity of the register, and the transaction's complete.

The pain of paying with phones hasn’t been formally studied, but there are reasons to believe that it is lower than when other payment systems are used. “I happen to think the future of money is in the mobile phone. There’s actually something very interesting in the brain happening,” Kabir Sehgal, the author of Coined: The Rich Life of Money and How Its History Has Shaped Us, recently told Marketplace. “When you don’t see money being spent, there’s less activation in your insula, meaning there’s less anxiety, which is probably a good thing for stores.”

That explains why mobile payment-services are less painful than cash, but are they less painful than credit cards? “I think that Apple Pay would have lower, the lowest, pain of paying,” says Dan Ariely, a behavioral economist at Duke University. “I think maybe initially it would have a higher one, but over time, people would basically stop thinking about it and it will create a low pain of paying, and therefore higher level of consumption.”

A main reason that services like Apple Pay will, as adoption increases, usher in a new level of painlessness is that they rely on a motion—a swift, mechanical drawing of the phone from the pocket—that’s already tied to so many other non-financial activities. The act of fishing out a wallet to procure a credit card has only one connotation: You’re about to pay for something. Unlocking your phone, however, is something done to retrieve information wherever you are. With Apple Pay, there are no signatures required or default push notifications serving as receipts, so a purchase becomes less noticeable.

Some, like George Loewenstein, believe that mobile-payment systems’ innovations in painlessness are only marginal. Loewenstein is a professor of economics and psychology at Carnegie Mellon University and an author of a 2007 paper in the journal Neuron that found that responses to enticing products and to their prices arose in different circuits in the brain. “To me, the key, pernicious, feature of Apple Pay is that it is linked to a credit card"—a payment medium that's been shown to ease consumers into overspending by postponing payment—"rather than a bank account, so it assimilates this very dangerous feature of credit cards,” he says.

Still, Loewenstein agrees that mobile-payment services are another advancement toward making transactions imperceptible. “Apple Pay is just the next step in an evolution of payment mechanisms in which the act of paying becomes ever less salient,” he says.

So what’s next on the path to the perfectly painless transaction? Soon, purchases may morph into automated operations, humming along in the background. In its product announcement, Amazon said that it would be partnering with the appliance manufacturer Whirlpool to produce a washing machine that automatically orders detergent when it detects that supplies are low. And one computer scientist recently told my colleague Alana Semuels that checkout kiosks could be on the way out: If products had Radio Frequency Identification (RFID) tags, which can be read by mobile phones, customers could enter a store, grab what they need from the shelves, and waltz out the door—pain-free.