Sure to be popular among small-business owners, delivery services, or people who want to collect $20 loaned to a cash-poor friend, Square takes existing mobile credit applications a step further by eliminating the need to manually input long credit-card numbers.

Born From a Lost Sale

The postage-stamp-sized device, whose name refers both to its shape and the capability to "square up" a transaction, was conceived at the beginning of this year by Dorsey and a friend, Jim McKelvey, according to Square's web site, Squareup.com.

After losing a sale of his glass art because he couldn't accept credit cards without a long application and approval process, McKelvey turned to Dorsey and they joined up with Tristan O'Tierney to develop a prototype with an investment estimated at $10 million from Khosla Ventures. Based in Menlo Park, Calif., and founded by Indian capitalist Vinod Khosla, the firm is a major presence in Silicon Valley.

Not unlike Twitter, the project is ambitious and simple but, for now, has no clear business model. Dorsey told the Los Angeles Times he plans to give the units away free to those who sign up for a Square account. At the moment, customers can only request information from Square. It's unclear if the company would charge a flat fee or collect a percentage of the transaction.

Software Limited, For Now

While the unit plugs into any device with an audio jack, including computers, the software is currently only available for iPhones and the iPod touch. But PC World noted that Square's engineer job listings are a sign the company has its sights on BlackBerry and Android applications.

Customers complete transactions by "signing" with a finger on the touchscreen. Tree-huggers will be happy to know they can then receive an e-mail or text with a link to a receipt to review and save -- no paper required.

But to do that, customers have to input their e-mail or cell number on the touchscreen, which can slow the transaction.

To address security concerns, Square wants it known that devices using its system will not store credit information, and those who register can submit a photo that would come up on the iPhone screen to verify the card-bearer's identity.

In a folksy touch, Square will tell the businesses you frequent most that you're a repeat customer , potentially earning you discounts or freebies. There's also an option to donate a penny of each transaction to the cause of your choice.

Technology blogger Om Malik (GigaOm.com) sees the Square having trouble gaining access to multiple platforms. But he believes it stands to take advantage of growing dependence on the wireless Internet and cut into the business of more expensive wireless card readers.

"My view is that Square (or something like Square) is going to disrupt the businesses of companies such as VeriFone and Symbol, a division of Motorola that makes point-of-sale devices," wrote Malik. "VeriFone makes a $900 wireless credit-card terminal vs Square, which runs on a $299 iPod touch. I rest my case."