F Developing a Sidecar Strategy for Tech Innovation By Jeff Ostheimer, Director of Fintech Advisory Services at SRM (Strategic Resource Management) Financial institutions (FIs) are taking a fresh look at their core system’s role in delivering products and services to customers. In addition to altering consumers’ banking habits, the pandemic forced FIs to rethink how they transform their systems and layer new digital capabilities onto their existing technology stack. Swapping out core banking platforms can be a time-consuming process — and expensive if you intend to do so before your contract ends — so many banks are getting creative and turning to fintech to hasten innovation. Let's look at how quickly things have changed in the past three years and what FIs are considering when it comes to updating platforms, adding functionality, and removing friction for consumers. Setting the Stage Switching your core platform has historically involved getting better terms or pricing. It rarely added significant expansion of services or product capabilities. While serving as “the brain” of daily operations for financial institutions, the features have been similar — and for years, financial institutions were content with that system. Meanwhile, the primary core platform providers have focused more on areas such as compliance. We assert that the system of engagement is now more important than the system of record. While providers have settled into offering a commoditized black box, banks no longer rely on their cores for delivering innovation. The pandemic significantly accelerated the timelines for digital enhancement at most FIs, and we've seen significant investment in fintech to add product features. The Sidecar Core Strategy The funny thing is that most FIs are reluctant to swap out their cores. A recent survey conducted by the American Bankers Association found that three-quarters of CEOs aren't planning a change despite the need to pursue digital transformation. Enter the sidecar core strategy, where banks turn to middleware firms to add niche products while leaving the 21 Colorado Banker
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