The SD card certainly can be used as such.
A USB stick is difficult as the PSoC5 can't act as a host and only as a device. The reverse is what is usually done, that is having a PC write the firmware with the assistance of some application or by having the PSoC impersonate a mass storage device.
Thank you for responding Implicit. Is there an example project or a direction you can point me to one how I can do software updates via an SD card?
Please have a look at the forum post:http://www.cypress.com/forum/psoc-3-device-programming/sd-card-based-bootloader-psoc3
Here PSoC3 based SD Card bootloader has been implemented. Sam can be implemented with PSoC5 too.