The successor to the Internet firm's Nexus One smartphone runs on fresh "Gingerbread" software and is imbedded with a near-field communication chip for financial transactions, according to Google chief executive Eric Schmidt.

"I have here an unannounced product that I carry around with me," Schmidt said while pulling a touch-screen smartphone from a jacket pocket during an on-stage chat at a Web 2.0 Summit in San Francisco.

"You will be able to take these mobile devices that will be able to do commerce," he continued. "Essentially, bump for everything and eventually replace credit cards. In the industry it is referred to as tap-and-pay."

The near-field chips store personal data that can be transmitted to readers, say at a shop checkout stand, by tapping a handset on a pad.

Schmidt hid markings that might reveal which company made the mobile phone, and playfully stuck with referring to it only as an unannounced product.

Google worked with Taiwanese electronics titan HTC to make the Nexus One handsets it released in January in a high profile entry into the booming smartphone market.

Nexus One smartphones built on Google's Android platform won raves for their capabilities but weren't a hit with buyers.

In a country where mobile phones are generally tied to specific wireless carriers -- Apple iPhones with AT&T, for example -- Google took a novel approach by selling the Nexus One without ties to, or subsidies from, any carriers.

Google eventually abandoned selling Nexus One handsets only online, switching to marketing the smartphones in real-world stores.

"I don't think people understand how powerful these things are," Schmidt said of smartphones. "This is a really good day for mobile."

Secure chips in handsets thwart fraud better than credit cards, he contended.

Google will rely on an online payments processor to handle the mechanics of purchases made using the chips in the new phones.

A tap-and-pay component should complement increasingly common location-based features that let merchants alert smartphone users to bargains available at nearby shops.

"I said there would never be a Nexus 2," Schmidt quipped. "Nothing about a Nexus S."

Google has been dipping into its war chest to buy technology startups seen as "gems" and to attract and retain talented workers.

Google recently gave pay raises to all of its employees worldwide, according to Schmidt.

"This is a war for talent," he said of the move. "It was a very nice day when everybody got raises."

When asked about the thrashing Google took in an array of countries after "Street View" imaging vehicles collected private data from wireless networks, Schmidt said the firm was conforming to standards in different regions.

"We learned with Street View and all of these things that you can't rush these products out," Schmidt said.

"The fact is that society is going to have to confront all sorts of uncomfortable questions...as technology moves forward."

Some lines should not be crossed, such as building face-recognition or real-time tracking technology into services such as Street View, he noted.

Schmidt expected television studios to warm to Google TV, an offering that combines the Internet and standard television programming.

"The industry concern seems to be that we are taking a dumb television and making it smart," Schmidt said of the effort to get studios to route content to sets equipped with Google TV.

"The concern is this enormous revenue stream to dumb TVs will be routed to the Internet. I think that is wrong. I think people will watch more television."

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