This is how I see it happening.
You pull out your Visa or MasterCard, swipe it and the merchant waits a second for confirmation.
In other words, a third party will handle the transaction risk, just like now, but the accounts involved will be denominated in BTC.
thats exactly how a creditcard company works now and how it will work with BTC credit. credit is credit no matter what currency your using. youll just have to know how many bitcoins you have left before you over charge your card and get it with a fee.
@ Haxxy: Why do you say that "The last thing bitcoins need is a physical transfer medium"? Don't you think that a device able to be brought with you can be very useful and helps increasing the spreading speed of the currency?
The ideal transfer medium is the smartphone. It has Bluetooth and web connectivity, allowing phone-to-phone or phone-to-PC transactions, as well as wallet encryption and automatic backup. Also, eliminating the physical card helps people psychologically feel and understand that bitcoins are a step forward. Besides, one would be much more inclined to adopt Bitcoin if all it takes is downloading an app, rather than ordering a card.
Hopefully all credit cards will start being on phone thorough Bluetooth and QR codes and also how it would probably work without credit for bitcoins. Fast confirmations is key but I dont see confirmations getting to much faster, hashing power will keep increasing but there will be more transactions as bitcoins grow and become a more widely accepted form of payment.