A few years ago, embedded finance was a hot topic at fintech meetups. In 2020, it was even suggested that embedded finance could be the future of fintech.
This distribution strategy allows fintech companies to integrate their services into other products and services, providing users with new features without requiring them to sign up for new services. This approach has been particularly appealing for fintechs, as it offers an additional layer of products they can offer to larger banks and financial services providers.
Ember, a British startup focused on embedded tax solutions, is demonstrating the ongoing viability of this strategy in 2024. The small firm has partnered with HSBC in the U.K., enabling the bank’s business customers to access Ember’s services through their online accounts. This partnership could potentially bring Ember thousands of new customers.
Ember’s service retrieves recent banking transactions and categorizes them automatically, allowing customers to track expenses, add receipts, create invoices, and handle basic accounting tasks.
Ember then provides an overview of a company’s revenue and expenditures, estimates taxes, and informs owners how much money is available for withdrawal as dividends.
While larger companies might work directly with chartered accountants or hire in-house professionals, freelancers and small companies with fewer than 10 employees could streamline their accounting processes using Ember’s self-serve product.
“Xero, QuickBooks, and FreeAgent are all designed for accountants, not for business owners. We saw a significant opportunity to create a transformative experience for end business owners to manage their entire suite of tax obligations,” said Daniel Hogan, Ember’s co-founder and COO, in an interview with Truth Voices.
However, the market is highly fragmented, with hundreds of thousands of small companies in the U.K., making customer acquisition challenging.
“Competing against Xero and QuickBooks on advertising spend was difficult and costly, which made direct customer acquisition challenging,” Hogan explained.
To address this issue, Ember has started negotiating with large banks like HSBC UK to offer an embedded solution. Customers can pay Ember for additional features like calculating VAT returns from the platform.
Ember also offers a team of in-house accountants who can handle complex tasks for paid customers, such as end-of-year annual accounting and corporation tax management. The free version on HSBC’s online banking portal serves as a funnel to attract paying clients.
Ember does not plan to work exclusively with HSBC. Although contracts with large banks require extensive negotiation, the company hopes to announce another partner bank soon.
With upcoming regulatory changes in the U.K., such as “making tax digital,” accounting software is expected to attract more interest from small businesses. By 2026, around 1.75 million business owners in the country will need to change how they file their taxes, with the majority currently not using any accounting service to assist them.
“HM Revenue and Customs has decided to become an API-first organization. They are relying on software providers like us to create the user experience, while they provide the API layer,” Hogan said.
“They count on us to develop better user experiences to help customers report more frequently and accurately.”
In addition to the HSBC partnership, this regulatory opportunity is a key reason why Ember recently raised £5 million ($6.3 million) from Valar Ventures, Viola Fintech, and Shapers.
