The new venture from Twitter co-founder Jack Dorsey has been the source of much speculation ever since tech blog Mashable posted a photograph of a new iPhone payments system that he was working on. Even we speculated that it could enable NFC transactions on the iPhone.

Today Dorsey has launched Square in beta. It does indeed turn the iPhone into a card payments terminal, but only for magnetic stripe cards, via the addition of a small device that plugs into the iPhone’s audio jack.

There are some interesting twists:

• The cardholder can sign their signature directly onto the iPhone’s touch screen
• They can enter their email address to get sent a receipt for the transaction by email
• For extra security, cardholders who register with Square can also submit a photograph which is then brought up on the iPhone screen at the point of sale so that merchants can compare the person presenting the card with the image stored on file
• Square also lets merchants know if the cardholder is a frequent customer so that they can offer special rewards or discounts to loyal customers

Future developments could, of course, include an upgrade of Square to include the ability to accept chip and pin, contactless and NFC transactions. The small size of the Square add on, though, is due in part to the fact that it does not require a power supply — the add on gets its power from the action of swiping the magnetic stripe card.

Dorsey has given an interview with Techcrunch which also has a demonstration of Square in action:

Next: Visit the NFCW Expo to find new suppliers and solutions