One reason is that GPS doesn't work well (or at all) indoors, through cell-tower geolocation should work well enough for that case.
I don't think contactless Apple Pay actually uses device geo[1] for authorization, but it's still worth noting that iOS devices without cell connectivity (ie WiFi-only iPads) don't have GPS anyway.
You can use Apple Pay on websites in Safari, though, which IIRC doesn't require location permissions to work.
1. You have to be able to use it in the same places you'd use a normal card, which means you can't rely on network connectivity of any kind.
Apple's statement was "to prevent the sharing of fraud prevention assessments with your payment card network, you may select another card". I removed my Visa cards from Apple Pay.
"For cards with certain enhanced fraud prevention, when you attempt an online or in-app transaction, your device will evaluate information about your Apple ID, device, and location (if you have enabled Location Services), to develop fraud prevention assessments, which are used by Apple to identify and prevent fraud."
Back in the university days, we (me + a few friends) used to get some radios and antennas to create a signal stronger than the one coming from satellites. It was always fun when the semester started and all freshmen were using Google Maps to navigate through the campus, but the map always showed their location in North Korea. Good ol' times.
