Google's newest iteration of its Android phone OS will include a wallet that lets you use your phone to make payments by tapping it against a cash register, CEO Eric Schmidt revealed Monday.

"This could eventually replace credit cards," Schmidt said.

Android 2.3, codenamed Gingerbread, will be released in a "few weeks," Schmidt said on stage at the Web 2.0 Summit conference in San Francisco. Schmidt showed off how so-called Near Field Communication would work using an unnamed smartphone he called an unannounced product. Using the software from Android and a NFC chip in the phone, Schmidt was able to "check in" to the conference, launching Google Maps, by touching the phone to a conference sign that had a built-in antenna.

(For geeks, there was little doubt Schmidt was showing off the Nexus S, a device thought to be made by Samsung as the successor to the original Nexus One. Unlike most other Android phones sold, the Nexus S will run the stock Android OS with no carrier modifications, making it the perfect phone for app developers and tinkerers.)

Near Field Communication sounds fancy, but it's the same technology build into debit cards that can be used to make a payment by bumping against a reader at a store or gas pump. Android 2.3 devices that have the right on-board chip will be able to make payments using stored credit card numbers or other payment systems such as PayPal.

While U.S. geeks have long hungered for their phones to take the place of plastic credit cards, the NFC technology is not likely to replace credit card companies. In fact, Schmidt said those companies are excited about Near Field Communication because they think it will reduce fraud.

Despite running its own payment solution called Google Checkout, Google will be aggregating many payment systems, not trying to replace them, according to Schmidt.

"Ultimately, it is a personal, secure and aggregating technology," Schmidt said.

Schmidt says he's bullish on mobile and says it will be a core focus for Google.

"I don't think people figured out how much more powerful the mobile devices would become than desktops," he said, referring not to their processors, but to their ability to keep a user connected to the net everywhere and use location to customize the net.

Schmidt imagines a future where mobile users who opt in to getting notices and suggestions will have local merchants sending targeted deals their way. Companies with smart algorithms and knowledge of your likes and dislikes (such as Google) can send you suggestions – such as where you might like to go for a coffee, or even remind you that you needed dental floss and there's a drugstore around the corner having a sale on it.

There's a lot Google could do with mobile if it knew more about users' friends and family – their so-called "social graph," but right now, that data is mostly locked up in Facebook, Schmidt said.

"We think that link structure has great value," Schmidt said "This kind of information is generally open so that its owners can move it around. I'm worried, as a general statement, that business structures are causing people to keep too much information private."

"It's possible to build these businesses using open protocols," Schmidt said, clearly referring to Facebook's Open Graph protocol, which data-portability advocates say is more about keeping people tied to Facebook than being open to all comers.

Photo: Google CEO Eric Schmidt holds up his Google phone as he speaks at the Web 2.0 Summit in San Francisco, Monday, Nov. 15, 2010. Credit: Associated Press/Paul Sakuma

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