Apple Pay, the safer way to pay. When you make a purchase, Apple Pay uses a device-specific number and unique transaction code. So your card number is never stored on your device or our servers, and when you pay, your card numbers are never shared by Apple with merchants.
Keep your purchases private. Apple Pay doesn’t keep transaction information that can be tied back to you. Your most recent purchases are kept in Wallet for your convenience, but that’s as far as it goes.
One of the major advantages of Apple Pay is tokenization. All transactions are made using tokens rather than credit card data. When a transaction is made, banks use the token to figure out which card to charge. This is why Apple has to partner with each bank before the bank's customers can use Apple Pay. As this is only a reference, merchants never have access to your card data.
To set up Apple Pay on an iPhone, open Settings, then choose Wallet & Apple Pay. From here, you can link your credit or debit cards to the phone's payment system. It also lets you add new cards and edit the details from existing ones.
To add the same card or cards to your Apple Watch, use the Watch app. Go to the My Watch tab and tap on the Wallet & Apple Pay option. This will give your wearable the same paying power as the card you've added, which means you'll be able to pay with your smart watch even when your iPhone isn't nearby.
Once you enter your card details, you're ready to pay for goods. To do this in a physical store, you can use any contactless terminal, even if it doesn't display an Apple Pay sign (though the sign is worth looking out for). As long as the checkout takes contactless payments, it should work with Apple Pay as well. Unlock your phone with a passcode or Touch ID, to prove it's actually you using it, then tap your iPhone (or Apple Watch) on the terminal to pay.
This system works through a technology called Near Field Communication, or NFC. Your card details aren't actually beamed from your phone to the terminal. Your device simply confirms that it's authorized to act on your behalf, using an encrypted code it received when you registered your card with it the first time.
Because this system is unfamiliar, it may breed security concerns. But Apple Pay can actually protect your money better than a card. While someone who steals your credit card would then be able to make multiple payments with it, that's not possible with an iPhone—they would need the phone's Touch ID or passcode to access your earnings.
To learn more about Apple Pay, here are two great websites/articles that can help.