One of the newest versions of the Wallet app seem to prevent the issue (if you already have the error, you are still out of luck). Entropy512 made a detailed post here explaining how the secure element is still being used but how Google updated Wallet to prevent this issue:
Completely dead wrong. The secure element is still in use - if it weren't, then GW would be working on the GT-I9100P and SGH-I777. GW wouldn't cause piles of SE spam in logcat when you use it. GW wouldn't REPORT A DAMNED SECURE ELEMENT VERSION IN THE ABOUT SETTINGS. GW wouldn't bomb if nfcee_access.xml is missing.
The only thing that changed with the "cards stored in the cloud" update is that instead of directly storing the info for an added Citi PayPass card, the SE now stores a "proxy" PayPass card that is funded from whatever card you added in the cloud.
However, Google has made SE management significantly more robust. Previously, if GW lost its credentials, it would just keep retrying until the SE bricked. Now, if it can't authenticate with the SE, it commands the SE to wipe its data and start from scratch. It's pretty much impossible to brick SEs with GW these days.
(Why the thread necromancy? People are still linking to this thread from elsewhere.)
While waiting to get my hands on one of these awesome phones I've been reading all I can about it. One thing I ran across in another forum was an issue people were having with the Nexuses & One X's and Google Wallet.
If you do not clear the Google Wallet settings before you do a hard reset/ROM flash, the secure element could be FOREVER BRICKED and you will NOT be able to ever use it for secure purposes such as Google Wallet purchases or future use of the secure element.
For some, this wont be a problem, but if you ever plan or at least want to have the option to use the google wallet, follow these simple steps before doing a hard reset or flashing a new ROM on your phone:
Launch Google Wallet
Hit menu button> Settings> Reset Google Wallet
You are now safe to flash a new ROM or reset your phone, Wallet will be waiting for you on the other side.
Clearing the app data or cache through settings or Titanium WILL NOT WORK! It HAS to be done within the Wallet app. This resets the secure certificate (?) and allows NFC to be used for secure purposes in the future.
While I understand the notion of keeping such functionality very secure, Google should have expressed the potential problem. Especially since hard resets are used as a solution when an ordinary user has a problem with their phone.
Frequently Asked Questions
Does this mean if this happens to me I wont be able to use NFC at all?
No. Not at all. NFC will still be functional for non-secure events, like Beam and NFC tag usage. This will only affect secure things, which at the moment is only Wallet.
Is there really no fix?
If you get the "secure element not responding" error, no. Of all the cases the only solution is to get a new phone. The secure element is permanently broken. In the future someone might find a fix, but that sounds unlikely. If you can swap your phone, do it.
How can I prevent this from happening?
If you don't do a lot of flashing, just remember to clear Wallet settings before flashing a new ROM. I would recommend to just leave Wallet cleared if you plan on flashing a lot, you forget once and it could be the end of your secure element.
I get a "Unsupported Device Error" yet Wallet still works, why?
This is a complete different error altogether and as a matter of fact, is not a big deal at all. This only shows up to root users and can easily be ignored -- Wallet will still work.
Why don't we have ROM devs cook in an auto-wiper when installing their ROM?
Only Wallet has the ability to access the phone's secure element, and it will likely be that way for the foreseeable future. A workaround would be to add an option before flashing anything to the recovery itself to ask people if they have cleared Wallet settings.
Wallet is asking for root permissions, should I grant them?
While there are no known repercussions to allowing root, as a general rule of thumb you should never allow root to an application you did not intend to give root access or do not know why it is requiring it. To be on the safe side (and in case something comes up in the future) deny root access to Wallet.
If I never set up Google Wallet will I be fine?
Yes. When you reset Wallet, its restores the secure element and the application data to how it was before an account was linked to your phone, therefore if you never set one up it will be the same as "restoring" an existing Wallet setup.
Wallet is stuck at "adding card" or "initializing account" or it tells me my device/carrier is not authorized, is my secure element toast?
Nope. This is a different message, Wallet activation is turned off at the moment. However, utnick came up with a working fix to get Wallet working right away. Check out his post here to get it. Please do not discuss Wallet activations here.