It would seem that Google has heard the cries of the masses and will be revisiting the security on their Google Wallet service. In the mean-time they have temporarily disabled the Google Wallet prepaid cards, while they work on a more permanent solution. Here is their statement:

Over the last few days we've received questions and concerns about issues related to the security of Google Wallet. People are asking if Google Wallet is safe enough for mobile phone payments. The simple answer to this question is yes. In fact, Google Wallet offers advantages over the plastic cards and folded wallets in use today.

First, Google Wallet is protected by a PIN — as well as the phone’s lock screen, if a user sets that option. But sometimes users choose to disable important security mechanisms in order to gain system-level “root” access to their phone; we strongly discourage doing so if you plan to use Google Wallet because the product is not supported on rooted phones. That’s why in most cases, rooting your phone will cause your Google Wallet data to be automatically wiped from the device.

Second, we also take concrete actions to help protect our users. For example, to address an issue that could have allowed unauthorized use of an existing prepaid card balance if someone recovered a lost phone without a screen lock, tonight we temporarily disabled provisioning of prepaid cards. We took this step as a precaution until we issue a permanent fix soon.

And just like with any other credit card, you can get support when you need it. We provide toll-free assistance in case you lose your phone or someone manages to make an unauthorized transaction.

Mobile payments are going to become more common in the coming years, and we will learn much more as we continue to develop Google Wallet. In the meantime, you can be confident that the digital wallet you carry provides defenses that plastic and leather simply don’t.

Posted by Osama Bedier, Vice President, Google Wallet and Payments
While many of our astute members already pointed out that these security issues are really nothing worse than if someone stole your actual wallet and got your physical credit cards, and, furthermore, if you lock your screen then in some ways it is actually more secure than that, it seems that Google wanted to make that clear to its customers as well. They are working on some solution for the prepaid cards issues to make things more secure, although what is actually a source for speculation.

In fact, let's hear from the community. Sound off in the thread and share any workable ideas that you guys think would solve these issues and make the Google Wallet service more secure.

Source: GoogleCommerce Blog