A few years ago, whenever I went to a fintech meetup, the conversation always ended around embedded finance. In 2020, we even wrote that embedded finance could represent the future of fintech.
This distribution strategy allows fintech companies to integrate their services with other products and services, allowing users to access new features without having to sign up for new services. This has proven to be a particularly attractive approach for fintech companies, as it provides them with a new product tier to offer to large banks and financial service providers.
Ember, a British startup working on embedded tax services, is proving that this strategy will still work in 2024. The small business partnered with HSBC in the UK to allow the bank's corporate customers to access Ember's services through their online accounts. Ember said he could gain 400,000 customers in one partnership.
Ember's service captures a company's recent banking transactions and automatically categorizes them. Customers can then track expenses, add receipts, create invoices, and do basic accounting.
Ember then provides an overview of the company's income and expenses, estimates how much tax it will pay, and shows how much money can be withdrawn as dividends to owners.
Image credit: Ember
Larger companies may partner directly with CPAs or hire in-house accountants. But freelancers and small businesses with fewer than 10 employees could at least take advantage of Ember's self-service product to simplify their accounting processes.
“Xero, QuickBooks, FreeAgent, etc. were all built for accountants, not end business owners. We saw an opportunity,” Daniel Hogan, co-founder and COO of Ember, told TechCrunch.
However, the problem is that this market is highly fragmented. With hundreds of thousands of small businesses in the UK alone, finding customers can be difficult.
“We were competing with the likes of Xero and QuickBooks on ad spend, and it was difficult to acquire customers directly for that very reason: It was expensive,” Hogan said.
Therefore, Ember has started talks with major banks like HSBC UK to provide an embedded solution. HSBC pays Ember a fee for each customer who chooses to use Ember's features, and if they want to access more features, such as the ability to add bank accounts from other financial institutions, they pay Ember a fee to do so. you can pay.
Ember also has a team of in-house accountants who can handle complex tasks for paying customers, such as year-end annual accounts and corporate tax administration. His free version of Ember, available on HSBC's online banking portal, serves as the top of the funnel for startups to acquire paying customers.
Ember no longer intends to work exclusively with HSBC. Deals with major banks take a long time to negotiate, but the company expects to announce another bank partner soon.
In the UK, upcoming regulatory changes ('tax digitization') are likely to increase interest from small businesses in accounting software. By 2026, approximately 1.75 million business owners in the country will need to change the way they pay their taxes. The majority of them do not use accounting services to assist them with this process.
“[The bank] decided to essentially become an API-first organization. So instead of building it themselves, they rely on software providers like us to actually build the entire experience. They’re just an API layer,” Hogan said.
“They rely on us to build better user experiences so their customers can report more often and more accurately.”
In addition to this initial partnership with HSBC, regulatory opportunities are also part of why Ember recently raised a £5 million ($6.3 million at current exchange rates) funding round from Valar Ventures, Viola Fintech and Shapers. It is a part of it.