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Twitter founder formally unveils 'Square' project

The add-on can turn a device, such as an iPhone, into a credit card reader. It's being aimed at small businesses for whom traditional credit card systems are cumbersome and expensive.

A look at one of Square's receipts for Sightglass Coffee, a San Francisco establishment in which founder Jack Dorsey has invested.

Small business is front and center for Square, the new mobile-payments company founded by Twitter co-founder Jack Dorsey. Previously in a quasi-stealth mode (OK, more like San Francisco's worst-kept secret), Square has now launched in beta, is accepting e-mail requests for preliminary accounts, and has put up a basic Web site to explain the company's premise.

The Square hardware is a small, inexpensive card reader that plugs into the audio jack of a compatible device, including a mobile phone (it's starting with the iPhone and currently has job postings up for BlackBerry and Android engineers). It processes credit card payments, geotags their locations on a map, and e-mails a receipt to the buyer.

"Even though a majority of payments has moved to plastic cards, accepting payments from cards is still difficult, requiring long applications, expensive hardware, and an overly complex experience," the Square Web site explains, talking about how the company premise was hatched when now-executives heard about an artist whose sales were hindered by the fact that he was unable to accept credit card payments.

What hadn't been reported before is that loyalty programs and microdonations are built in as well. Square can track a history of your purchases at a given establishment for discounts and promotions, effectively replacing the buy-10, get-one-free card at coffee shops. Additionally, Square donates a cent of each transaction to a nonprofit organization that the merchant chooses.

CNET first reported the company's name (it had been code-named "Squirrel") as well as some of the details about its business model: low production costs, possibly to the point where the devices can be distributed for free, and profits from transaction fees. (It's not clear whether they actually will make them free.)

Square has set up offices in San Francisco, New York, and St. Louis, with a team of 11 employees announced on the Web site. It's backed by Khosla Ventures and some angel investors.