Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK | TechCrunch

A few years ago, you couldn’t go to a fintech meetup without ending up with a conversation about embedded finance. In 2020, we even wrote that embedded finance could represent future of fintech,

The distribution strategy allows fintech companies to integrate their services into other products and services, which in turn gives users access to new features without having to sign up for a new service. This has proven to be a particularly attractive approach for fintechs as it gives them a new layer of products to offer to larger banks and financial service providers.

embersA British startup working on an embedded tax offering is proving that the strategy is still valid in 2024. The small company has partnered with HSBC in the UK to allow the bank’s business customers to access Amber’s services from their online accounts. Ember could potentially gain 400,000 customers from a single partnership.

Amber’s service receives companies’ recent banking transactions and automatically categorizes them. After that, customers can track expenses, add receipts, create invoices, and do basic accounting.

Ember then provides an overview of your company’s revenue and expenses, estimates how much you’re going to pay in taxes, and tells you how much money is available for owners to take out as dividends.

Larger companies will likely work directly with chartered accountants or even employ in-house accountants. But freelancers and small companies with fewer than 10 employees can at least simplify their accounting processes with Amber’s self-service product.

“Xero, QuickBooks, FreeAgent are all built for accountants, not end business owners. “And we saw a huge opportunity to create a transformational experience for the end business owner to take care of their entire tax obligations,” Daniel Hogan, co-founder and COO of Ember, told TechCrunch.

The issue, however, is that this market is extremely fragmented. There are hundreds of thousands of small companies in the UK alone, which means it is hard to get customers.

“We were going up against companies like Xero and QuickBooks on advertising spend, and it was hard to get customers directly for that exact reason — it was expensive,” Hogan said.

This is why Amber has started talks with big banks like HSBC UK to offer embedded solutions, HSBC pays Amber for each of its customers that chooses to use Amber’s features, and if they want to use more features, such as the ability to link other bank accounts from other financial institutions, they can do so. Can pay Amber for.

Amber also has a team of in-house accountants who can look after complex tasks such as year-end annual accounting and corporation tax management for paid clients. The free-to-use version of Amber that you get on HSBC’s online banking portal acts as the top of the funnel for startups to acquire paying customers.

Amber will not work exclusively with HSBC going forward. It takes a long time to negotiate contracts with big banks, but hopefully the company will have another partner bank to announce soon.

With upcoming regulatory changes in the UK (“making tax digital”), accounting software will likely receive increased interest from small businesses. By 2026, about 17.5 lakh business owners in the country will have to change the way they pay taxes. Most of them do not use any accounting services to help with this process.

,[The bank] has decided to essentially become an API-first organization. So instead of building it themselves, they’re relying on software providers like us to actually create that experience. They’re just becoming an API layer,” Hogan said.

“They are counting on us to create a better user experience to help customers report more often and more accurately.”

In addition to this initial partnership with HSBC, regulatory opportunities are also part of the reason why Amber recently raised a £5 million funding round ($6.3 million at today’s exchange rate) from Valar Ventures, Viola Fintech and Shapers.