Has Apple Pay made it too easy to spend money?

Apple Pay leads the tap-to-pay market, which has exploded in popularity in the last few years. | Jeff Chiu/AP

Tap-to-pay makes spending money fun, easy, and virtually invisible.

Apple released iOS 17 on September 18 and now that the new operating system is here, you can probably leave your wallet at home.

The latest version of iOS expands what you can do with Apple Wallet, including how you pay for stuff and how you can use your iPhone to show your government ID, bringing the physical wallet closer to being obsolete. It also marks a step forward in Apple’s steady march toward becoming a sort of bank. Now, the company offers the Apple Card, a high-interest savings account, and interest-free buy now, pay later loans with Apple Pay Later, which launched earlier this year. This was almost a decade after the initial rollout of Apple Pay, which offered iPhone, iPad, and Apple Watch users the ability to buy things in stores by tapping their devices to a reader. With the latest update, Apple is continuing to make it clear that your smartphone isn’t just for calls, texts, and snapping a quick pic of dinner — it can handle everything related to your finances, too.

But it’s one thing for your phone to make video calls a piece of cake, and another for it to make spending money so easy.

When Apple Pay launched in 2014, one big criticism was that it tried to solve a nonexistent problem. Credit cards were already easy to use. Who really needed a tap-to-pay feature?

While it’s probably true that no one has thrown their hands up in utter confoundment at the prospect of swiping a credit card, the point of tap-to-pay technology wasn’t just to solve a problem for consumers. It can also grease the wheels of freer spending and help tech companies make money from these mobile transactions.

Today, the ability to shop with the tap of your phone is everywhere. Between 2019 and 2020, contactless payments soared by an impressive 172 percent; Visa reported in a recent earnings call that a third of in-person card transactions in the US are now tap to pay. The uptake is even higher in major metropolitan areas: In New York, where contactless pay for its sprawling subway system was introduced in 2021, the payment method accounts for almost half of all physical transactions now. Apple says that almost all US retailers accept Apple Pay, and according to tech research firm 451 Research, it’s the second most-used digital wallet after PayPal — pretty impressive considering it entered the market over a decade after PayPal. Tap to pay as a whole is a $300 billion industry in the US, with no signs of slowing down.

As mobile payments become more accessible, the act of consumption becomes more invisible. And that could spell trouble. Big tech companies like Apple are offering an onslaught of more frictionless ways to part with money. That also means they’re quickly becoming powerful arbiters of how we spend money, how much we spend, and what we spend on — all without facing the same strict regulations actual financial institutions, like banks, face.

A new way to spend — and spend, and spend

The biggest draw of tap to pay is how easy it is, which may also be its biggest problem. Studies show that how much you’ll spend at a store hinges on how you’re paying. Cash is arguably the most restrictive and cumbersome; there’s an unbendable limit on what you can spend, and the money takes up physical space in your wallet. As credit cards overtook cash, research on consumer habits revealed that people are much more willing to fork over money in the form of a credit card, leading to people making larger purchases and even becoming better tippers.

It’s not merely that cash is more irritating. It’s more psychologically painful to pay with dollar bills and coins because there’s a tangible exchange taking place: the loss of countable, hard-earned money for the gain of some item. It makes you think twice about what you place in your shopping cart.

“When we lose something of value, it’s like a squirrel losing a nut and then feeling bad about the fact that he doesn’t have one more nut,” says Manoj Thomas, a professor of marketing at Cornell University.

The visibility of losing a nut matters because it’s not a rational thought process. Debit card spending patterns, for instance, are more akin to credit than cash. But even though the money is immediately withdrawn from your bank account when you use a debit card, you don’t actually see that you’re losing a tangible “nut,” so you’re less pained by the spending.

While tap to pay is still pretty new, there’s evidence that paying with your phone is even less painful than using a plastic debit or credit card. One 2019 study found evidence that people using mobile payments — not only tapping their phone to pay but scanning QR codes or other payment methods through the phone — were more likely to have higher “financial risk tolerance” and display costly credit card behavior, which includes paying late fees or only making minimum payments.

Jeenah Moon/Bloomberg via Getty Images

An Apple Store employee helps a customer with an iPhone purchase.

Another consequence of not using cash is that it’s harder to remember the damage. People who use cash more accurately recalled how much they spent than people who used credit cards or mobile pay, according to a University of Warwick preprint paper. Between contactless debit, PIN-verified debit, and cash payments, contactless had the worst recall. (Interestingly, PIN-verified credit and debit led to poorer recall than contactless credit, debit, and mobile payments.)

If just your debit card is linked to your phone, that also puts a hard cap on spending. But once you add your credit card to the tap-to-pay feature, you’re confronted with all the pitfalls of credit card swiping, which may even be amplified. What’s more, certain kinds of purchases become more common with credit cards or mobile payments. “What I found is that people spend more money on snacks, beverages — what’s typically considered discretionary purchases,” Thomas explained.

The advent of credit cards solved the problem of not having enough cash on hand at the moment, enabling people to make bigger purchases. Yet there were still plenty of scenarios where cash made more sense. Stores often had minimum amounts to swipe with a card to cover the transaction fees charged by credit issuers, so buying a stick of gum at the corner store required cash.

But now even that distinction has blurred. More retailers have embraced the use of credit cards (or no longer even accept cash), in part because so many customers now want to go cashless. With tap to pay, smaller purchases with credit cards have become more common. According to Mastercard, a whopping eight in 10 contactless payments in early 2020 were for purchases under $25, which it notes is “typically dominated by cash.” The Federal Reserve also found that tap to pay was used more often for smaller purchases than plastic credit cards, with an average value of $30.

Merchants also had another reason to adopt tap to pay and do away with credit card minimums: Customers tend to spend more overall if they’re not using cash. The dollar amount of an average purchase might be smaller with tap to pay, but the total number of purchases can increase. As Thomas put it, “Businesses are realizing that people spend a lot more when they use more abstract modes of payment.”

Big tech’s big push into our wallets

Tap to pay is just the dip of a toe in the ever-expanding waters of financial services that tech companies are rushing to offer. On top of Apple Pay, the Apple Card, and Apple Pay Later, Apple’s long-term plans include rolling out a suite of in-house financial services, as reported by Bloomberg last year. While it’s not clear yet how successful Apple Pay Later will be, the company has reason to be optimistic. Apple Pay is arguably the gateway to its increasingly lush ecosystem of financial features, and it has a healthy lead over competitor Google Pay as the iPhone continues to dominate the smartphone market. A little over half of smartphone users in the US have chosen an iPhone, and over 55 million people in the US now use Apple Pay, according to Insider Intelligence.

From activating Apple Pay — which the iPhone strongly prods new owners to do — it’s a small hop to a whole host of other current and future services that would make Apple the central vault of your personal finances. As my colleague Sara Morrison has reported, the iPhone is well on its way to becoming your bank.

Your phone isn’t only a place to store your credit or debit card information for mobile payments, but also the home for your savings account, your boarding passes, digital keys and passwords, vaccination cards, and even your driver’s license.

Marcio Jose Sanchez/AP

Since launching Apple Pay in 2014, Apple has steadily rolled out improvements that make it even easier to use.

Apple’s fintech push is also coming alongside the launch of hardware subscriptions, which would let people pay a monthly fee to rent an iPhone. Most iPhones aren’t purchased outright but through a trade-in program, installment plan, or other kinds of financing, but the subscription is especially ideal for people with not-so-great credit. All of this encourages people to spend — and to do so through Apple.

Apple is also renowned for a design philosophy that streamlines every aspect of the user experience, whether by removing buttons or simplifying software so that the functions are easy to understand and intuitive to use — just recall how audiences gasped when Steve Jobs showed off pinch-to-zoom on the original iPhone. This kind of ease of use is great when it comes to checking your voicemails or browsing your photo album, but becomes potentially problematic when it comes to spending money, something companies like Apple want us to do even if we can’t afford to. Apple Pay just requires a double-click of the iPhone’s side button and a glance at the screen for Face ID to confirm your purchase. The iPhone even gives you a quick buzz and makes a pleasing ding when the payment goes through. With the Apple Watch, you can even use a simple hand gesture to bring up tap to pay.

The availability and ease of use of Apple Pay has really paid off for the tech giant: Analysts estimate the company made about $1.9 billion last year from Apple Pay transaction fees charged to credit issuers.

That big number is why there’s a brewing battle over some of Apple’s policies. In a recently released report, the Consumer Financial Protection Bureau flagged Apple’s practice of blocking third-party developers from accessing its NFC chip, the tech that enables tap-to-pay in smartphones. Apple ensures that every iPhone owner who wants to use contactless payments goes through Apple’s payment service, and the CFPB contends that it’s essentially a form of regulation Apple is imposing on other companies.

“We only think this is going to become more critical going forward, as the shift from cash to cards to now mobile devices is estimated to increase and intensify,” a CFPB spokesperson tells Vox.

Apple’s singular dominance isn’t just bad for other competitors in the space; the lack of meaningful competition is ultimately bad for consumers, leading to fewer choices and possibly higher costs for the consumer. The fintech industry — particularly with buy now, pay later programs — has been luring in customers with promises of convenience, easier access to credit, and lower interest rates than traditional finance, but with its entrance into the sector, Apple threatens to heavily influence how fintech works and how much more reliant consumers become on credit and loans. Its foray into buy now, pay later is especially worthy of scrutiny, as the ease of spreading out payments also coaxes spending, considerably increasing sales for some retailers in recent years. Just five buy now, pay later companies loaned out $24 billion in 2021, an explosion of over 1,000 percent from 2019, according to a report by the CFPB. Meanwhile, credit card debt reached a historic high this summer, topping $1 trillion.

“People have recently been spending more,” says Bruce McClary, vice president of marketing at the National Foundation for Credit Counseling. “They’ve been using their credit cards more frequently for things that they might have otherwise paid for in cash several years ago.”

And they’re not just carrying higher balances, either. Delinquency rates for credit cards are back up to pre-pandemic levels. With student loan payments set to resume this fall, these are worrying signs.

The growing reliance on credit makes it all the more likely that tech giants’ entry into fintech will be attractive to consumers, even if using these financial products wouldn’t be in their best interest. Apple CEO Tim Cook claimed that it’s “helping people live a healthier day” through Apple Pay and the Apple Card, citing that the Apple Card has no annual fees and that its savings account has a high interest rate. But even if it wants to position itself as a more trustworthy bank or financial adviser than what we’re used to, the reality is that Apple is a tech company, not a bank. Banks are regulated financial institutions, while big tech companies are, well, not regulated. They have no fiduciary duty to customers.

“There’s a blurring of the lines between banking and commerce, and that is very concerning in itself,” says the CFPB spokesperson.

Still, if fintech companies wanted to urge some financial restraint, they could in theory resist making spending through your phone so slick, intangible, and addictive. With Apple Pay specifically, there’s something soothing or even pleasurable about the haptic buzz and little dopamine-inducing ding when a payment goes through. But payment platforms could “build in more points of friction so that the process of paying gets slowed down a bit — this is both psychologically and financially safer,” says Merle van den Akker, a behavioral economics expert and one of the authors of the University of Warwick preprint.

It’s pretty unlikely that any company would add obstacles to spending money through their platform when their plan for making money — ideally, a lot of money — depends on being as frictionless as possible.