Apple Pay is Apple's payment system that stores your credit card information on your compatible device so you can pay for things without having to whip out that plastic card you keep in your wallet.
The Apple Pay system is two-fold; it lets you pay for things using your device in stores and in apps. The most recent iPhones can do both. Devices like the iPad Air 2 and iPad mini 3 allow you to purchase things in apps, but not in stores. Owners of an older iPhone like the iPhone 5S will need to pair it to an which devices are compatible with Apple Pay.(when it's released) to make in-store purchases. Apple has a chart to explain
How to set it up
First thing's first -- you have to update your Apple device to. For safety, backup your phone to iCloud or iTunes. Then to update your phone, go to Settings > General > Software Update. Download and install the update.
Your credit cards are managed within Passbook, so open that up. With the update, you'll see a new option to add credit and debit cards. Apple's made it easy to link whatever credit card you use with iTunes to Passbook. You'll just have to enter your security code to verify the card.
For other credit cards, you can type in the number or you can use the camera to scan the card. If you have multiple cards in Passbook, you can change the default credit card associated with payments by going to Settings > Passbook & Apple Pay.
Now you'll be able to purchase things using your phone.
For more iOS 8.1 tips, please see.