Square, an early and successful contender in mobile payment acceptance, has launched a gift card system that users can redeem using its Wallet and Apple's Passbook app.

The electronic "gift cards" can apparently be redeemed at the point of sale with a Quick Response (QR) code that can be scanned at the counter.

Twitter co-founder and Square chief Jack Dorsey (@Jack) tweeted about the gift cards early Sunday morning. "Treat friends and family to local favorites with Square gift cards. Easy to redeem with Wallet, Passbook, or paper," he wrote.

Square said, in a press release, that the cards will be available at roughly 250,000 "local" shops.

The San Francisco company has made waves since its mobile card reader debuted in 2010.
Since then, it's gained a well-deserved following with investments from Visa and a cash register app that works as an alternative to point of sale system hardware.

Just last month, Square launched a Starbucks app that works similarly to the coffee chain giant's own mobile payment software in the wake of a $25 million investment in August. American Banker chose Dorsey to be its Innovator of the Year for 2012.

This latest move underscores that Square is moving past card acceptance and into truly mobile payments.

"I thought for a while that the mobile card acceptance [market] was getting overcrowded. You see new dongles being introduced," says Aaron McPherson, a research manager for payments at IDC Financial Insights in Framingham, Mass. "I think it's going to move to a cloud wallet, and mobile payments is evidence that Square sees that they have to broaden beyond their initial point of strength."

One industry observer predicts partial success for the new gift option. "It will undoubtedly be successful for Starbucks," says Phillip Philliou, partner at the payments consultancy Philliou Partners. "Outside of Starbucks, consumers prefer the utility of Visa, MasterCard and American Express gift cards."

These cards, however, are not reloadable.

"The gift cards are digital and link with Square Wallet so there is no need to reload," a Square spokeswoman said by email. "If you have a Square Wallet account you link your credit card once and you can pay at any Square merchant with your phone."

"It's a Visa market, and everyone is trying to capture it," says Brian Riley, a senior research director in the bank cards and retail banking practice at CEB TowerGroup.

He explains that one of the advantages of having a closed-loop gift card is keeping the costs internal — that's not the case with these gift cards, which carry the same price as credit cards for retailers, 2.75%.

"Will Square dilute the margin for retailers?" Riley asks. "That will be the big telling tale."