Retailers should be particularly excited for Monday’s debut of Apple Pay, which promises to be an excellent tool for separating shoppers and their money.
Apple’s mobile payment service will let iPhone users buy things by simply pulling out their device. 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. It’s also why companies such as Starbucks encourage customers to load money onto apps or prepaid cards.
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. Citibank tested the research in 2009 and found a mobile “tap to pay” pilot program significantly boosted both the number and size of consumer transactions.
Buying things without cash is simply more fun. Richard Thaler, a behavioral economist at the University of Chicago, proved such transactions are more pleasurable experiences (PDF). Anyone who has ever walked away from an Uber ride knows this feeling well. With credit card data embedded in the app’s settings, someone using the service never actually pays or even tips—at least not in any physical way.
The question with Apple’s new payment service is whether it’s an additional degree of distance from credit cards or merely taking the well-established place of plastic in the psychology of shopping. Apple Pay doesn’t require any swiping or tapping, which seems to suggest a new level of abstraction. With a fingerprint on the iPhone button and a little wave at the cash register, the deal is done. “Now paying in stores happens in one natural motion,” Apple says in its pitch. “You don’t even have to look at the screen.”
Some 220,000 stores are already set up to accept the payments, including Bloomingdale’s, Foot Locker, Macy’s, McDonald’s, and PetSmart. The list also includes RadioShack, a retailer desperately in need of a revenue boost. The other brick-and-mortar companies in that troubled camp—J.C. Penney, Sears —would do well to get onboard.