unveiled last December as a small credit card reader that could turn any iPhone into a mobile cash register. The startup has since unveiled apps for the iPad, Android and iPhone. And Dorsey brought on PayPal and Slide veteran Keith Rabois as General Manager in August. As Square exits its pilot, the startup is hitting an impressive milestone: Square is now processing millions of dollars in mobile transactions every week.

So where is Square seeing the most traction? Without a doubt, small businesses, independent workers and merchants comprise most of Square’s rapidly growing user base. The technology only requires its tiny credit card scanner that fits into your audio jack and Square’s app. The device and the software are free, but Square takes a small percentage of each transaction (2.75% plus 15 cents for swiped transactions).

While merchants have to qualify for the app, Square’s qualification rules are more relaxed than those of standard credit card processors, There are no initiation fees, monthly minimums, and when merchants apply for a reader, Square doesn’t just focus on a credit check, but also takes into account the influence a company holds on Yelp, Twitter or Facebook.

Rabois tells me that that Square is the “PayPal for the real world.” He also compares Square as the “Apple for financial services,” because it is so easy to use out of the box. Indeed, when I spoke to merchants and Square users, ease of use and simplicity were ubiquitous descriptions of the device.

Nicole Westmoreland, the co-president of the Crocker Highlands Elementary PTA in Oakland, started using Square on an iPhone in mid-September to raise money through sales of swag and tickets for the organization. In a little over a month, the PTA had taken in $4500, and Westmoreland maintains that she would have only been able to raise $1000 without Square. “It was an easy way to force people to pay on the spot,” says Westmoreland.

Another interesting use case involves Dr. John Horning, a practitioner who makes house calls in the Bay Area. Because his work is completely mobile, an easy to use payments system was a must. Because of the nature of his business, payments tend to be large so credit cards are often the go to way for patients to pay. He previously used a wired credit card scanner but found it cumbersome and difficult to use. Square, on the other hand, fits into his medical bag (he uses it with his Android phone), and is an easy system for his staff to learn as well.

And for some entrepreneurs, Square is a way to both bring in revenue and save money. For San Francisco cupcake store Mission Minis, Square was a way of avoiding a costly cash register. Brandon Arnovik said that a point of sale system was the last thing on his mind when launching his bakery; and when he looked at the prices of systems he was overwhelmed. He heard of Square, and actually bought an iPad just so he could use the card scanning system on the device. One advantage he says of using the system, is that it can be used to provide detailed metrics on sales. For example, Arnovik can know how many red velvet cupcakes were sold in a given day.

Rabois says that Square now has well over 50,000 users since opening to the public but the number is impressive considering that most of Square’s growth has been organic and through word of mouth. In fact the company, only hired its first marketing staffer last week.

Of course, things have not been completely rosy for Square and the company has faced the same problems that most early-stage companies encounter in the first year of business. The startup has faced compatibility hiccups and shipments of the actual device were delayed over the summer over credit processing issues. To prevent credit fraud, Square limits transactions numbers, but customers complained that the limits are too low. And VeriFone entered the spacewith a deal with PayPal.

PayPay is a great product for people who sell things online, but one advantage Square has over a competitor like Verifone, says Rabois, is the magical brand attachment. “If you look at the people who are using Square,” he says, “they are enthusiastic about both the brand and the device.” And he’s not too worried about VeriFone, saying that it’s unclear if VeriFone’s pricing is competitive to Square’s model.

Plus, Square, he says is perfect for face-to-face transactions and has proven to actually help increase sales for small businesses. One his favorite use cases of Square is for a local Granola company called San Fran Granola. The bootstrapped team started using Square to sell at farmers markets and office buildings and saw revenue go up by 20 percent.

But will Square be able to take off if its users are mainly small businesses? Probably. In May, Dorsey told us that of the roughly 30 million US merchants who make less than $100,000 per year, of this group only 6 million are currently processing credit cards. The remainder, or 24 million businesses, are all potential Square customers who are looking for a low-cost and simple way to process credit cards.

However, while Rabois says that while targeting large retailers and merchants isn’t a set strategy, we can probably expect a few larger-scale strategic partnerships the company will form in the future. Zappos is actually using Square in-house for sample sales of extra inventory, from which the proceeds go to charity. And the company used Square to raise money for LiveStrong at a recent golf tournament. Sean Kim, director of business development for Zappos, says that “people continue to be amazed by the convenience of it.” Kim says that without a doubt, the use of Square helped raise more funds for the charity initiatives.

As for the future, Rabois says one of the challenges Square faces is that mobile payments is a rapidly evolving industry. “I don’t think anyone would be able to predict what it looks like in ten years. We have to be really agile, creative and innovative at the same time,” he says.

Square is going to continue to grow in terms of employees, he says; the startup has been averaging three to six hires per month. And when we asked if here any new funding rounds in the future (Square raised $10 million From Khosla Ventures and a number of other prominent angel investors last year), Rabois didn’t really say yes or no. “We are getting an email per day from interesting investors and there are certainly lots of interesting things one could do with more capital.”

Photo Credit/Dave Getzschman

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Authors: Leena Rao

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