The first generation Square readers were basically the read head from a tape recorder soldered to an audio plug. All of the signal processing was done in softwa

The first generation Square readers were basically the read head from a tape recorder soldered to an audio plug. All of the signal processing was done in software, and even that was pretty simple - magstripes are low bit-density binary, after all. The readers were simple enough that they made the first few hundred by hand, in San Francisco. Once they started mass producing them they were dirt cheap. Gradually that's changed, though. Pressure from the credit card industry and other payment processors forced Square to start encrypting the magstripe data so that malware on smartphones wouldn't have access to the card numbers (I don't know whether this is a legitimate concern, but the pressure was strong). So Square started putting integrated circuits (and batteries!) into the readers. Now, with the chip readers coming out, they're starting to be seriously complicated hardware.