How does Apple Pay work?

With Apple Pay, instead of using your actual credit card number when you add your card, a unique Device Account Number is assigned, encrypted and securely stored in the Secure Element, a dedicated chip in iPhone and Apple Watch. When you make a purchase, the Device Account Number, along with a transaction-specific dynamic security code, is used to process your payment. So your actual credit card number is never shared by Apple with merchants or transmitted with payment.