Embedded finance has been a popular topic in the fintech industry for several years now. The concept involves integrating financial services into other products and services, allowing users to access new features without having to sign up for a separate service. This strategy has proven to be particularly attractive for fintech companies, as it allows them to offer their products to larger banks and financial services providers.
One startup that is capitalizing on the potential of embedded finance is Ember, a British company that specializes in embedded tax offerings. Ember has partnered with HSBC in the U.K., allowing the bank’s business customers to access Ember’s services directly from their online accounts. This partnership has the potential to bring in thousands of customers for Ember.
Ember’s service is designed to simplify the accounting process for small businesses. It fetches companies’ recent banking transactions and automatically categorizes them, allowing customers to track expenses, add receipts, create invoices, and perform basic accounting tasks. The platform also provides an overview of a company’s revenue and expenditures, estimates tax payments, and calculates available dividends for the owners.
While larger companies may still prefer to work with chartered accountants or hire in-house accountants, Ember’s self-serve product is ideal for freelancers and small businesses with fewer than 10 employees. According to Ember’s co-founder and COO, Daniel Hogan, existing accounting software like Xero and QuickBooks are built for accountants and not business owners. Ember saw an opportunity to create a transformative experience specifically for business owners to manage their tax obligations more effectively.
However, Ember faces challenges in a fragmented market with numerous small companies in the U.K. alone. Acquiring customers directly through advertising can be expensive, especially when competing against established players like Xero and QuickBooks. To overcome this obstacle, Ember has turned to partnerships with big banks like HSBC UK. Under these partnerships, HSBC pays Ember for each customer who chooses to use Ember’s features. Customers can also pay Ember for additional features, such as the ability to add bank accounts from other financial institutions.
Ember also offers in-house accountants who can handle complex tasks for paid customers, including end-of-year annual accounting and corporation tax management. The free version of Ember available through HSBC’s online banking portal acts as a top-of-the-funnel tool to attract paying clients. While Ember currently works exclusively with HSBC, they are actively negotiating with other big banks to expand their partnerships.
Upcoming regulatory changes in the U.K., known as “making tax digital,” are expected to increase interest in accounting software among small businesses. Approximately 1.75 million business owners in the country will need to change how they file their taxes by 2026. Most of them currently do not use any accounting service for this process. The U.K.’s tax authority, HM Revenue and Customs, has embraced an API-first approach, relying on software providers like Ember to build user-friendly experiences for reporting taxes more frequently and accurately.
Recognizing the regulatory opportunity and the potential for growth, Ember recently raised £5 million in funding from investors such as Valar Ventures, Viola Fintech, and Shapers. This funding will enable Ember to further develop its product and expand its partnerships with other banks.
In conclusion, embedded finance continues to be a promising strategy for fintech companies like Ember. By integrating their services into existing platforms, they can reach a larger customer base and offer innovative solutions to simplify financial processes for small businesses. With the support of big banks and upcoming regulatory changes, Ember is well-positioned for success in the evolving landscape of accounting software.