Apple launches new digital payment system

SAN FRANCISCO (KGO) -- Apple is launching a new digital payment service that allows customers to use their smartphones instead of handing over credit cards.

Signing up for Apple Pay is pretty easy. It's supposed to be more convenient and even designed to make it even more secure than using your actual credit card.

With the newest iPhones, you take a picture of your Visa or MasterCard. Apple Pay then creates and stores what's called a digital pay token. According to Visa, that creates an added layer of security.

"Their credit card number is never actually on their phone. We replace that number with a digital alias. It replaces the card number. It runs through the payment network just like a normal credit card number would," explained Visa Vice President, Sam Shrauger.

Donna Tam is a reporter who covers electronic payment technologies for CNET. She says these digital alias numbers can be helpful if a retailer's systems are compromised.

"If someone hacks into the merchant's payment databases and tries to use that information, it will be useless. They won't be able to use it anywhere else," said Tam.

When you do make a purchase, instead of swiping a credit card, the phone prompts you to authorize the sale with a fingerprint. It's another security layer. But what happens if you lose your phone? Or it's stolen?

"There have been a lot of studies that show, when people lose their wallet, they'll report that loss within 24 hours. But when you lose a phone, they typically report it within an hour," said Shrauger.

The phone can be remotely disabled if it is stolen and a customer can still use their credit card if they still have it.

Right now the technology is available at more than 200,000 retailers across the country. Apple is partnering with most major banks and major retailers like McDonald's, Macy's, Whole Foods, Walgreens and Peet's Coffee. That's still a small number, however, compared to the 15 million retailers who accept Visa and MasterCard.

So even the most digital savvy customers won't be ditching their wallets just yet.

There is also another problem. "If your phone dies, you're kind of out of luck because you don't have your phone anymore," said Nick Troccoli, a customer.

And right now, Apple Pay is only available on the new iPhone 6 and 6 plus.