From Legacy to Leading Edge: Transforming Banking with Sidecar Systems
The banking landscape is undergoing a profound transformation, and it only seems to gain speed with each passing day. With rapid technological advancements, service innovations and changing customer expectations, financial institutions are feeling more pressure than ever to modernize their systems and services, and they need to do so urgently.
Modernization often entails a journey from legacy core to leading edge modern core, designed with flexibility and scalability to leverage the most out of the technological advancements in cloud computing, operations and use of AI in the banking service.
Yet many FIs, especially larger institutions, remain tethered to outdated legacy systems.
These systems, often developed decades ago, are typically rigid, expensive to maintain, and ill-equipped to handle the dynamic needs of modern banking. FIs then build multiple satellite systems to overcome the limitations of legacy systems. These satellite systems are often purpose built to perform a specific task/function and often lack the ability to scale or stay updated resulting in a lot of technical debt.
Furthermore, frequent changes in the executive sponsorship and key stakeholders of the project also impact strategic priorities and overall modernization. Each change/shift in model, if not crafted with foresight, leaves ghost fingerprints on different layers of IT along the way, making the overall ecosystem bulky with overlapping functions, which makes modernizing the core much more complicated.
And if that weren’t enough, the rise of fintechs attracting younger generation, changing regulatory landscapes and demographic trends demand more flexibility and agility, which adds further pressure to renovate outdated cores.
Core modernization is a foregone conclusion for most, but how does one take that first step?
Is there a path that derisks the impacts and yet gives ROI? Is there an option that allows banks to take bite size projects, at a comfortable pace, offering a pragmatic degree of technological and business success?
Fortunately, there is—enter the sidecar.
“Sidecar Core: Your Gateway to Scalable, Secure Banking Excellence”
Yes, the sidecar, that little car attached to a motorcycle that draws up images of military officers clutching papers and maps while racing across Europe in World War Two. While the driver throttled the gas, applied the brakes and decided where to go, the officer shared the ride and focused on making important tactical decisions. While both travelled together in the same direction, each had independent tasks and targets to achieve.
In banking, a sidecar system is an auxiliary core that operates alongside the main core, providing additional or subset of functionality without disrupting the existing core. This allows banks to target a specific customer segment, introduce a new digital product/brand, offer instant payments, etc. and thereby create new revenue streams without disrupting their legacy core.
The industry’s modernization trends indicate the sidecar approach appeal – by 2026, 40% of global banks will have adopted strategies to run digital core banking systems alongside current applications, and they will do so without the urgency of replacing the legacy system entirely.
Why the Sidecar Model is an Effective Catalyst for Transformation
The sidecar model, running parallel to the core system, creates a fast, flexible pathway for launching and managing modern banking services. This approach enables banks to scale quickly and deploy new offerings seamlessly, introducing technologically advanced products without risking disruptions to the existing core. Furthermore, sidecars provide a low-risk environment for generating new revenue streams and offer a scalable foundation for future product launches. With sidecars, deployment accelerates, allowing development teams to build and test features independently and efficiently.
Scalability becomes much easier. For instance, a sidecar when coupled with SaaS model, can better handle spikes in transaction volumes during peak periods like Black Friday, ensuring smoother customer experiences and ensure better efficiency.
Sidecars enable innovation by better supporting new technologies such as AI and embedded banking. For instance, a bank can integrate a retailer’s payment solution, allowing customers to make purchases within the retailer’s app, which improves user experience.
How to begin your sidecar transformation journey
Transformation in any core typically starts with a strategic assessment and identifying the business component that fits to be launched as a sidecar. The assessment needs to be business led rather than being a system integration. It further gets structured by analyzing the current ecosystem to identify key integration points and dependencies critical for modernization project to function without disrupting current operations. This is a crucial step in the overall journey.
Once the target segment, product/services scope is defined (For example: new digital products, instant payments or seasonal promotional offer), it is important to have an indicative timeline, deployment approach and key resources required to work with the implementation team.
It is important to evaluate if the sidecar core can be consumed as a SaaS services, as they significantly reduce the burden to run and maintain the infrastructure, offer greater scalability, resilience, security and can be consumed as a subscription.
There needs to be a long-term and short-term vision. While the short-term objective focuses on getting the sidecar core up and running for faster time to market, the long-term vision should take into consideration how a sidecar core can serve as a path to progressive renovation.
Choosing the right vendor is crucial. A reliable partner helps keep the sidecar updated, fostering agility, security and offers a wide range of rich capabilities to augment continuous improvement within the bank.
In summary, sidecar systems offer a practical path for banks to innovate without disruptive overhauls. As banking evolves, embracing approaches like the sidecar core will be key to staying competitive, delivering faster, more customer-centric services that meet modern demands.
It’s time to modernize to monetize!