It’s essentially a small magnetic reader that plugs into the headphone jack
of an iPhone. When a credit card (or a debit card) is swiped through the
reader, it reads the data and converts it into an audio signal. The
microphone picks up the audio, sends it through the processors and then is
routed to Square’s software application on the iPhone. From there the
encrypted data is transmitted using either Wi-Fi (for iPod touch) or a 3G
Internet connection to back-end severs, which in turn communicate with the
payment networks to complete the transactions.