I noticed a local business (Blue Moon Burgers) using iPads as registers, using similarly flimsy (though not Square) card readers. They gave up after a few months and switched to a traditional POS setup. I don't know whether it was the card readers that were to blame, but I'm guessing they were part of it.
External card reader would be much more expensive because it has to (IIRC banks enforce it (probably thanks to insurance companies)) encrypt all communication with the "register" (in this case iPad). So it can't be just some dummy device.
You can make a dummy device that works exactly the same way but has a large physical footprint can't you? Yes, it has a higher cost, but POS systems are very costly too.
