I can think of a couple arcade examples analogous to the "in-game currency" variety of IAP. In Gauntlet, inserting coins adds to the player's health, which constantly ticks down. In Lunar Lander, inserting coins buys fuel, which is needed to maneuver.

By the time arcade games were sophisticated enough to have things like multiple weapons and super moves, developers had settled on the model where extra coins are used to buy the ability to continue a game after failing. The arcade industry is quite conservative overall.