For just $1 you will be able to plug a small square into your iPhone’s headphone jack and you can read any credit card, make transactions right away! This is the dream Square is selling to all the troubled small businesses. In the not-so-distant-past, you have to open a merchant account and go through lengthy procedures to accept credit card transactions for your business not to mention those bulky credit card readers styled on your front desk.

Now all you would need is an iPhone with the small square (like the one in the photo above) plugged in and you can transact credit cards right away. Square, the startup co-founded by Jack Dorsey of Twitter will start offering the service from this summers.

So why is the square reader so cheap? Because Square will be slicing 2.9% as transaction fee and you may also choose to donate to any charity from the list they’ll provide. The service will come with an iPhone app that will handle the transaction on your iPhone. And the best thing is that you can deposit into any normal account and not just a merchant account like you used to do in the past.

Here’s a nice demo which details the procedure and functionality of the service:

On another note, it’s also very likely that iPhone 4G will feature RFID reader.