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FinTechs in Focus: Duco

Duco, founded in 2010 in London, is a FinTech firm focused on providing Software as a Service that can compare any data sets, in any format, in minutes and identify discrepancies.

Within the financial services industry, the technology being supplied by Duco is being used by firms to reconcile their trading data, a back office process that is still being conducted manually at many big banks.

“You just have to look at the scale of some of the big banks,” says Christian Nentwich, CEO and co-founder of Duco. “There are some firms that have more than 1000 people globally who are sitting around reconciling data on spreadsheets.

“Banks are spending tens of millions on IT groups trying to automate this process in old legacy systems, but we’re talking about a multi-billion dollar problem. It might be considered a boring back office process, but it’s mandatory. You have to reconcile your trades and if you don’t, the auditors won’t sign off,” he adds.

In addition to the cost savings, Nentwich believes that new regulations in Europe and the US are also making Duco’s product more relevant for the banks. Traditionally, the data coming out of these firms would have remained in-house, but now regulatory requirements are increasingly putting this data under greater scrutiny.

“There have been a number of chief data officers hired by the banks over the past couple of years, and it’s exactly because of the greater scrutiny they are under,” explains Nentwich.

Duco’s model is built around offering plug-and-play software, using sophisticated algorithms and machine learning technology that can work alongside existing legacy systems. In terms of implementation, Nentwich says that the platform significantly reduces time to market, which avoids the need for long and costly IT projects within the banks to modify their existing systems.

Another reason why Duco is seeing traction within the financial services industry is that, as trading volumes have started to slow down in some markets, firms are looking for ways to improve their back office systems.

“If markets are booming and trading volumes are constantly rising, firms are willing to put up with a bad back office. But continued low interest rates and a more onerous regulatory environment has slowed down the world a little bit in terms of how much is being traded. These two factors aren’t changing and firms still need to make a profit, so they are looking at how they can be more efficient on the post-trade side,” says Patrick Thornton-Smith, chief marketing officer at Duco.

Nentwich agrees with this assessment, adding: “There’s a big change in attitude happening right now. It would have been more difficult to secure a meeting to sell our product in 2005, because people were so busy trading as much as possible. Even when we started talking to people about controlling and cleaning data, to get it under control, it was a bit abstract at first, but that’s changed a lot.”

Because Duco is a self-service model, the company provides the technology and then its clients can use it wherever they think it is most applicable to their business. But during discussions with clients, Thornton-Smith found that a number of them were using the technology for their FX activities, in one case using it to reconcile trades from various ECNs in their back office systems.

According to Nentwich and Thornton-Smith, the fact that liquidity is so dispersed amongst so many different firms and trading venues makes the asset class a natural fit for Duco’s technology, which is why the firm is now making a push into this market.

“Right now we’re looking at how we get into the FX space and become the vendor of choice,” says Nentwich. “I haven’t heard about many FinTechs operating in FX, especially not on the consumer side. It’s still a market dominated by the big platforms and the big players. This creates a perfect storm for us in terms of being able to go into the market and be innovative and disruptive.”

Despite talk of disruption, Duco is working closely with established market players in order to build out its business. ICAP, which originally invested in Duco in 2012 through Euclid Opportunities, upped its stake in the firm in 2015 during a series B funding round. More recently, Duco announced in March that CME Group will be offering its reconciliation technology to its member firms.

“The next step for us is forming partnerships with three or four big banks and implementing a global deployment of our technology across all business lines, solving the whole data challenge rather than working with one department at a time,” says Nentwich