So say you’re a small business that has so far stuck to cash-only transactions. They’re quick, easy, and there are no fees involved. What you may not realizes is that you are alienating the increasingly large percentage of your target audience that carry a credit card and very little cash (myself included). But accepting credit cards is a hassle, right? The equipment is bulky and costs hundreds of dollars up front, plus the fees are outrageous! Well my friend, that could all soon change.

Square is a company co-founded by Jack Dorsey (of Twitter fame) and Jim McKelvey, a glass artist and glass art instructor from St Louis. As the story goes, Jim was working in his studio and was tired of losing sales to people who did not have cash on-hand to make purchase so he teamed up with his techie friend Jack. Their sole purpose in this endeavor was to make credit card transactions as painless as possible. Together they came up with a process that streamlined how credit card transactions were performed and managed to reduce the high overhead fees.

Touted as the perfect supplement for a small or mobile business, all you need is a small attachment connected to one of the supported mobile devices and you are good to go! After you install and activate the app, you simply enter an amount along with an optional note, swipe the card, have the customer click Authorize and sign (using a fingertip), and Square will take care of billing the customer and depositing the money in your account. A receipt can be emailed to the customer with a GPS-mapped location of where transaction took place. It also includes several nice bells and whistles including the ability to manually enter credit card numbers, handle cash transactions, and automatically calculate tips.

One of the biggest selling points is cost. Up-front, the merchant pays absolutely nothing! A Square account and the card-scanning device are completely free. The fee per transaction is 15 cents plus 2.75% for swiped card transactions or 3.5% for typed-in card transactions. There are no contracts to sign, no monthly fees and no hidden costs. Additionally, all transactions are processed nightly as opposed to the monthly batch transactions of traditional credit card processors. This enables anyone from big business down to a sole proprietor to be able to start accepting credit cards immediately quickly and easily. Accepting credit cards could not be easier!

Here is a vid of Kevin Rose showing the product in action:

From my perspective, the concept is pretty ingenious! The system excels in its simplicity and obviously has widespread application possibilities from flea markets and road-side vendors to freelancers and mom and pop shops. My only concern is from the security perspective. With the dependency of an external device, how easy could it be for someone of malicious intent to create a similar looking device that also stored credit card data? I’m sure Square takes security as a top priority, but with the prevalence of jailbroken phones and home brew apps, I would be a bit wary of allowing someone to swipe my credit card on their iPhone. Of course, that may just be naive paranoia. I’m sure there is just as much risk, if not more, in handing a waiter my credit card when paying for dinner. Truth be told, I ‘m surprised more of these systems haven’t hit the market yet. Let me know what you guys think!

Square is officially live in production on the iPhone, iPod touch, iPad, Nexus One, Droid, and Incredible, with other devices coming soon.  If you want to check it out you can download the app here.

Fast Company – Square Brings Credit Card Swiping to the Mobile Masses, Starting Today
Mashable – Credit Card Scanner Square Comes to iPhone
Engadget – Square mobile payment system goes live on iPhone, iPad, and Android this week (video)
ReadWriteWeb – Even The Babysitter Takes Credit Cards With Square
gigaom – Jack Dorsey on Square, How It Works & Why It Disrupts