All smartphones will have NFC chips in the next year or two which will allow payments from your phone. I see a much bigger future in small merchants using that than a card swipe via audio port, but maybe Square will have an NFC solution as well.
Even if next year all smartphones have NFC built-in, it will take many more years before there are enough users with NFC to make it worth supporting for a small vendor. Besides, just having the capability doesn't mean a user has created an account -- and connecting to your cell phone bill doesn't count.
My point is the playing field will be much more open, because it will be only a software solution, not a hardware+software solution which has more barriers to market - There could essentially be a Visa merchant app that accepts payments from other phones.