Xero, a New Zealand-based platform for small businesses, is making a major move into the U.S. market with plans to acquire Melio Limited, a bill pay platform that serves small and medium-sized businesses. The acquisition, valued at $2.5 billion, will be a mix of cash and equity.
Melio currently serves 80,000 customers and processes more than $30 billion in payments annually. While it will continue to operate as a standalone company, Xero plans to integrate Melio’s bill pay capabilities with its cloud-based accounting solutions, creating a unified platform tailored to the needs of U.S. small businesses.
According to Xero’s research, 78% of U.S. small businesses place a high priority on having integrated accounting and payment software. One of the key benefits for Xero in this partnership is that Melio provides access to customers who may not yet be using formal accounting solutions. The two companies will work together on a differentiated payments syndication offering, targeting banks and vertical SaaS partners, with the goal of expanding the initiative over time.
Building a Presence in the U.S.
Xero has long employed a “3×3” strategy, focusing on improving its core accounting, payroll, and payments solutions across three key markets: Australia, the UK, and the U.S. However, its presence in the U.S. has been limited until now, with the company generating most of its earnings from sales in Australia and New Zealand.
“This makes a lot of sense for Xero,” said Hugh Thomas, Lead Analyst of Commerical and Enterprise at Javelin Strategy & Research. “At a stroke they replicate some key differentiating capabilities of probably their biggest competitor, Quickbooks.
“The choice to acquire a U.S. payments provider also makes a lot of sense,” he added. “Xero’s current user base is mostly outside of the U.S., so with this move they get both a more competitive offer, and an installed client base of payers and payees, all new potential Xero users, in a huge market where they’re not yet a big player.”
The Future of Mom-and-Pop Shops
In the past, Melio has partnered with major firms such as Fiserv and Capital One to bring its products to U.S. small businesses. Its white-label service provides vertical SaaS platforms to larger merchants such as Shopify.
But Melio has also long focused on bringing mom-and-pop shops into the modern world of payments technology.
In fact, in 2022, Matan Bar, CEO and Co-founder of Melio, noted: “Now more than ever, mom and pop shops must adopt the lessons learned of the pandemic and embrace digital payment solutions. “With the help of digital payment platforms, small businesses can spend more time serving customers and less time invoicing—allowing their business to thrive even in the face of unprecedented challenges.”
