Visa has backed Square, investing an unspecified amount in the mobile payments start-up founded by Twitter's Jack Dorsey.
Square provides merchants with a piece of plastic that fits in to the headphone jack of Android-based handsets, iPhones and iPads, and acts as a card swipe for processing payments.
In January the company raised $27.5 million in a funding round led by Sequoia Capital and Dorsey recently revealed it is processing $1 million per day, while it is also reportedly signing up to 100,000 merchants for the service each month.
It has now secured the backing of card giant Visa, whose president told the Wall Street Journal that it "invests in payment innovations that can enable more businesses to accept Visa".
Square competes with Intuit and Verifone, which offer similar products targeting the millions of small American merchants that do not accept credit cards.
Visa's faith in the start-up comes shortly after Verifone launched a very public attack on its rival, posting an open letter and video slamming Square, accusing it of "serious security flaws" that put "consumers in dire risk".
Meanwhile, a Swedish company called iZettle is planning to launch a similar system for turning iPhones into payment terminals and is already asking people to sign up for an invite. However, unlike its American counterparts, iZettle turns handsets into EMV, not mag-stripe, terminals.
Hat tip: Finextra blogger Adam Nybäck.