The next several years are going to be tough on financial services firms as recruiting decent technology talent becomes more difficult.

This is not a new challenge for Wall Street, as typically the most talented programmers would prefer to work in the electronic gaming industry developing better game engines and improving texture-mapping capabilities, rather than writing low-latency feed handlers and developing smarter routing engines.

However, large established firms are now losing out on the next tranche of talented technologists, who prefer to work in the start-up community making the next better mousetrap and reaping the rewards associated with it.

It also doesn’t help that firms have gutted their IT budgets after the 2008 credit implosion to meet their new capital requirements and other regulatory mandates.

All of this is in line with the conventional wisdom that “businesses need to focus on their core competencies” and that financial institutions are financial institutions and not technology companies.

But this is where many senior management gets it wrong. They see their businesses only as consumer of technology and do not see the need to develop innovation internally.

The rise of cloud computing and other shared services likely only reinforced this belief as IT departments were able to slash their capital budgets by adopting these services from providers like Amazon, Microsoft and a host of other vendors.

However, this migration also lowered the barriers of entry for the next generation of technology start ups.

These small and agile businesses don’t need to invest in the same technological footprint that most existing banks, broker-dealers or asset manager have in place in order to run their firms.

These lower operation costs also have lowered the cost of failure for start ups, which means entrepreneurs can spread their investments across more FinTech start ups and increase the likelihood that more of their bets will pay off with innovative competitive advantages.

Financial institutions could simply become the client of these new companies and integrate the technology into their existing infrastructure, but what of the startups that prefer to compete directly with existing financial institutions?

All one has to do is look in to the payments sector: Everyday new vendors with lower overhead pop up and take a bite out of the middle- and bottom-tier payment system operators and the pace of innovation continues to accelerate.

If existing player in the markets do not innovate on their own or decide to delay their investments in internally developed innovation, these latest startups will have an entrenched competitive advantage and could wrest various business lines away from the established player permanently.