Starting next month consumers who buy Apple's (AAPL) latest iPhone--the iPhone 6 or 6 plus--will be able to use their phones instead of physical credit or debit cards for purchases. All they'll have to do is install Apple Pay on their phone, which stores their credit card and debit card information.
American Express (AXP), Visa (V), MasterCard (MA) and six of the biggest U.S. banks have signed up to support the new payment system along with 220,000 retail outlets, including McDonald's (MCD), Bloomingdales and Macy's (M).
The app uses chip and pin technology, instead of the magnets that credit cards currently use, to keep information secure. The chip generates a one-time authorization code for each purchase and the pin is the unique number a consumer will have to tap into a retailer's credit card reader for each purchase. This technology is considered more secure than the magnetic stripe technology used on most credit cards.
Sherri Haymond who heads the digital channel management group at MasterCard, tells Yahoo Finance that the technology is "really, really safe" because it uses "EMV security which gives each transaction a code number that only MasterCard or the issuer can unlock."
In addition, she says, MasterCard, Visa and American Express will have the ability to shut off the application immediately, if, say, a consumer loses their phone. "When we send over the data to Apple to put onto your phone, we send over a fake 16-digit number, called a token, and then we're able to eliminate that token and shut it off," Haymond explains in the video above.
Whether Apple Pay eventually replaces the physical credit or debit card for iPhone users will depend on not only consumers installing it on their phones but also retailers buying the readers, which cost $300 to $500 each.
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