The thing that has me wondering about the secure element is that I recall reading somewhere that the watch can do Apple Pay without being connected to a phone. If that's the case, it better have a secure element otherwise I'm not interested in using it.
Why not?
We use credit cards every day with little or no security (at least, in the US).
The watch is already more secure than that, because it requires a PIN to authorize it each time we put it on. That's logically the same as requiring a PIN each time it's used. If someone steals it off our wrist, it's de-activated for payment.
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That said..
The watch could either act as a dumb communications intermediary, or handle the NFC transaction locally.
If it just passes info back and forth from the phone, then it needs no Secure Element.
However, the watch very likely handles things locally, simply because entire tap transactions have time limits as low as 150ms, and we wouldn't want things to get screwed up waiting to talk to the mother phone. So it would have a copy of our info... or more likely, a time-limited copy.
If it does handle it all locally, then it'll need a Secure Element not so much for the info itself, which should be pretty safe from sandboxed third party apps (unless someone figures out a way to jailbreak the watch), but more so that it can run its own local copy of each of the card scheme specific payment apps.
Which brings up again the whole topic of who provisions the MC/ Visa/ Amex/ etc apps in the SEs. Normally this is done via a link of backend providers and trusted service managers like First Data. Doesn't the watch have WiFi? Maybe it can access updates on its own?
Pay, so as soon as it's off your wrist you would need to use your phones touch ID or passcode to have the watch work again.
