Square can afford to give away the dongles because they will be banking 2.9% of each transaction. Users can also pick their favorite charity and Square will donate a penny to it from its cut of each transaction.
Not only could this app be the new best way to pay back your friend who bought your drinks at the bar, but it could also become a killer app for small businesses. For just $1, anybody can have the functionality of a full blown credit card reader on their phone. Small merchants won't have to resort to dealing only in cash, and record keeping would be made simple with the service tracking each receipt.
Square - ReadWriteStart