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Well, here is the thing. The security flaw, at least as I understand it, allowed access to the funds in the Google Prepaid card IF, (and this is a big if) the owner lost the device AND (this is a big and) the owner didn't lock the screen. In other words, just like you lost your wallet with cash and credit cards in it, and a miscreant pick it up and take advantage of it. Sure that isn't ideal, but I'm not freaking out at my wallet manufacturer any more than I'm freaking out at Google over this. I just don't consider it a major issue. It requires two missteps from the owner to even expose the flaw to exploitation.
I won't be surprised if this does slow down the move towards smartphone-as-a-wallet, even though I personally don't consider it a huge flaw. Any increased focus on security is probably a positive development during this transitional period. I hope that news of this flaw doesn't frighten off too many merchants and users from the digital wallet concept.