I've been working with smart card tech for almost 20 years now. I've seen the breaks and countermeasures, and am fully aware that the technology can be broken given enough effort. That's why good security designers arrange to limit the damage possible, to a value which is less than that which can be obtained by breaking it -- and we have pretty good estimates of break cost. Off-device countermeasures are critical, too, such as the risk engines already implemented by all of the credit card issuers. ID-related data should be authenticated with off-device keys, similar to the way the authentication data in passports is already secured.
Obviously nothing is perfect, which is why the security engineers who design this stuff spread the risk. But that risk spreading doesn't mean you can't put everything in one device. In fact, it really doesn't even help to have a wallet full of separate cards, because they're all in one place. And having all of your credit cards in your phone is vastly more secure than having them all in your wallet, because your wallet has no locks and the cards in it have their whole frigging card numbers printed right on their face. It's hard to get much worse security than that (because, fundamentally, credit cards are horribly insecure -- the identifier and the authenticator are the same value? Really?)
You can certainly feel free to avoid putting everything in your phone if you like. But the vast majority of people who are willing to trust the security designers will not be disappointed in the results. Not that there won't be occasional problems, there are problems with anything, but they will be less common than the ID and payment fraud we have today.
Bottom line: It will be better security, not worse. I challenge you to find a serious security researcher who knows anything about the technology and disagrees.
nice post! This is interesting stuff, I can really visualise them being a major force in retail banking? Would you trust them? You already kinda do... They win instant points for not being a bank as anyone understands it these days. And the benefit to everyone having the mark of the be... sorry - a smartphone as their wallet / purse / bag - would be cool tech for magazine covers. It will be a smash. I'm pretty convinced google are on track in the thinking displayed. And yes, I agree it is more secure than existing bank cards. Massively, I wouldn't be accepting your challenge in a hurry pal, your thinking is rock solid on this. And everyone here is petrified of their smart phone becoming a SPOF of life threatening proportions, one word - backup. Doesn't take a leap of the imagination to see this being fluid, real and useful tech, and indispensable to money as a medium at all levels of the global economy. If Google can walk "don't be evil' and unleash a bit of people power in their offering too, then they're as smart as everyone says they are...