Starling bank snaps up accounting startup to power SME tax tools

Starling Bank has acquired British accounting software startup Ember, aiming to strengthen its suite of services for small and medium-sized enterprises (SMEs). The challenger bank plans to offer business clients integrated tax and bookkeeping tools alongside its core banking products.

The deal’s financial terms were not disclosed, though sources familiar with the transaction said it was valued at under £10 million (around $13.5 million).

Declan Ferguson, Starling’s chief financial officer, described the acquisition as a natural extension of the bank’s existing offerings. He noted that combining invoicing, accounting, and tax software with traditional banking services like loans and credit facilities made strategic sense.

Starling braces for new era of tax rules

Mergers are crucial for small businesses and self-employed workers in Britain. From next year, HM Revenue & Customs (HMRC) will implement new rules forcing about 780,000 sole traders and landlords to update the taxman on their income and expenses every three months rather than annually. The move is part of the government’s Making Tax Digital project.

For a small business owner, the pressure to comply will also increase with these new, quarterly filings. By embedding Ember’s tools, Starling aims to make tax compliance painless for its close to 500,000 small business customers.

The financial firm’s small-business portfolio has expanded rapidly in recent years. The bank was among the most active lenders under the government-backed schemes to support business through the pandemic, allowing it to develop close ties with small companies and entrepreneurs up and down the country.

Ember, founded in 2019, marketed itself as a modern, digital-first accounting platform. It enables entrepreneurs to automate bookkeeping, keep up-to-date with expenses, and handle taxes on a mobile-friendly interface. Last year, the company also raised £5 million via funding led by Valar Ventures — the venture capital firm funded by Peter Thiel and Shapers.

Previously, Ember has worked with heavyweights including HSBC, Revolut, Barclays, and Lloyds in banking to provide integrated accounting functionality. These partnerships will, however, phase out by 2026, as Ember becomes part of Starling’s ecosystem.

The startup will cease its accounting advisory services as part of the acquisition. There will be the opportunity for around 30 Ember employees to join the financial firm, providing continuity in knowledge. Co-founders Daniel Hogan and Aaron Shaw will join the bank and drive integration.

The deal will close Ember’s time as an independent entity, but its technology will now be able to cater to a much broader range of SMEs via Starling’s banking infrastructure.

Starling soldiers on despite regulatory setbacks

The deal comes at a difficult time for Starling. The bank was fined £29m by regulators in October last year for what was described as “shockingly lax” controls over high-risk customers between September 2011 and November 2013.

Certainly, Starling is operating under an FCA voluntary restriction. This action prevents the bank from bringing on certain types of customers until it fixes deficiencies in its compliance systems. Even so, Starling has pursued further products and tech investment.

Outside the UK, Starling was said to be eyeing international expansion. Bloomberg reported in June that the bank was considering the purchase of a nationally chartered bank in the United States. It was also reported that Starling had entered talks to hire senior US bankers during the summer to advise on the process, although the bank declined to comment. The lender’s chief financial officer, Declan Ferguson, noted that there was a real opportunity to establish a regulated business model in the US.

Starling puts itself out as more than just a digital bank by taking hold of Ember. It’s evolving into a hub for small businesses requiring banking, accounting, and tax services on one platform.

The move indicates Starling’s ambition to take on high street banks and fintech competitors such as Tide and Revolut, which are extending their SME offerings. The merger, for small businesses that already were navigating tighter rules, more reporting requirements, and surging costs, could mean simplicity at last.

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