How to disable password of Apple watch

To turn off the passcode, on your watch, go to Settings>Passcode and turn it off.

Not using a passcode makes your watch vulnerable to anyone who has your watch.

If you watch does not use a passcode you cannot use Pay.

ASC - Late 2012 Mac mini, macOS 10.15.2; Watch, series 5 GPS/cellular, watchOS 6.1.1; iPad Air 2, ipadOS 13.3; iPhone 8+, iOS 13.3; TV 4th Gen, tvOS 12.4.1;  HomePods, audioOS 13.3 and Airport Express w/ Airplay 2

Yes Apple Pay on your iPhone is separate from Apple Pay on your Watch

You can have Pay on your phone without having also having it on your watch.