Apple Pay: A new "painless" way to spend money?

Remember your first credit card? That feeling of power and of acceptance into a new financial world, soon enough followed by your first credit card bill – a sometimes harsh reality of that new financial world.

According to a recent report by Business Week, "Researchers have long found that shoppers spend more the further they get from handling actual currency and tend to better remember cash transactions. These tendencies help explain why credit card balances tend to bloat and why casinos use chips in place of money... Behavioral economists have a term for this dynamic: decoupling. The card or app or casino chip mentally separates the consumer from his bank account. The payment is both delayed and bundled with other charges so it doesn’t seem so painful."

Which brings us to the new Apple Pay.BusinessWeek reports that Apple Pay should excite retailers because of the psychology of human behavior. The further someone is from paying actual cash, the more they are inclined to spend, they say. Photo from Bloomberg report, "Why Retailers Will Love the Apple Pay Era," 10/17/14

Hiawatha Bray, the Boston Globe tech writer, got it right when he began a report stating that “my iPhone 6 just turned into a credit card.” But he might have added that it turned into a different kind of credit card – a seamless, virtual payment system detached from the psychology of handing over cold hard cash or a piece of plastic. iPhone in hand, Bray admitted that he "went on a rather pathetic spending spree – French fries at McDonald’s, another candy bar at the Star Market on Morrissey Boulevard [in Dorchester, MA]. Always, the experience was instantaneous, and painless."

Quick and painless spending is why Apple Pay may prove to be a welcome boon to retailers who have long understood that separating the immediate gratification of a purchase from the harsh reality of payment can unleash powerful spending patterns. Writing in the “Retail Therapy” blog for Psychology Today, Scott Rick, Ph.D notes that “... research also suggests that credit cards can stimulate overspending: People are often willing to pay more for the same product when using credit than when using cash. Certainly, outside the lab, there are many trait-based explanations for such a ‘credit card premium’…”

The “credit card premium” and the strong psychology of buy now, pay later are very real, and what’s being missed in the whiz-bang story of Apple Pay is that these mobile payment systems offer a new world of convenience – along with some of the problems of the old world of credit card spending. So while it may be a blessing for retailers, is the ease of just waving your iPhone near a register going to increase the usual problems associated with managing credit, particularly for millennials who tend to be early adopters?