The battle between traditional payment processors and financial institutions and upstarts looking to dethrone them is on.

The upstarts, obviously, have their work cut out for them. Entrenched players like Verifone have significant marketshare, and are increasingly employing interesting strategies in an attempt to ensure they always have a seat at the dinner table.

That means one thing: the upstarts have to get clever and creative. And that’s just what they’re doing.

Case in point: Square, the mobile payment startup whose dongle turns any iPhone or iPad into a credit card reader, is looking to outfit 50 taxi cabs in New York City with tablets. The New York Times has the details:

The commission is weighing a proposal by Square, a mobile payment company based in San Francisco, to replace Taxi TVs in 50 cabs with similarly shaped iPads or other tablets. If approved, the pilot program would allow riders to play computer games and swipe a credit card at any point in the trip.

David S. Yassky, the chairman of the Taxi and Limousine Commission, said Square’s technology would open up opportunities for a variety of content and computer applications, like the social network Foursquare, which allows members to note their locations, or games with taxi themes.

The games and social applications are, of course, designed for consumers, and just icing on the cake. Square’s real goal, obviously, is to squeeze its way into the lucrative business of processing taxi fare payments in New York.

The 50 taxi TVs Square is hoping to do away with are run by Verifone and Creative Mobile Technologies. Needless to say, they’re not pleased at the prospect of being replaced. While Taxi and Limousine Commission Yassky is interested in doing what he can to drive down the cost of accepting payments for cab drivers, the incumbents are questioning the security of Square, something they have been doing since Square burst onto the scene. Square counters that it is processing over $2bn in transactions annually and hasn’t had any problems.

At the end of the day, it’s not unreasonable to expect that pricing will beat out security concerns. That’s good news for consumers and businesses, but ironically may not be good news for the upstarts like Square. After all, entrenched competitors may hesitate to cut their rates, but when they do, the interesting part of the battle will really begin.