Xero's move to buy Melio signifies a progression in Xero's U.S. strategy for small businesses.
In a strategic move to bolster its presence in the thriving U.S. market, Xero, the New Zealand-based platform for small businesses, has announced a $2.5 billion acquisition of Melio Limited, a bill pay platform serving small and medium-sized businesses (SMBs) in the United States.
Melio, with its focus on modernising payments technology for mom-and-pop shops, brings a unique value proposition to Xero. One of the key benefits for Xero is access to customers who may not yet be using formal accounting solutions.
The acquisition aligns with Xero's "3×3 strategy," which focuses on improving its core accounting, payroll, and payments solutions across three key markets: Australia, the UK, and the U.S. By acquiring Melio, Xero aims to significantly accelerate its U.S. revenue growth, trebling it to US$235 million, and more than doubling group revenue by FY28.
The integration of Melio's bill pay capabilities with Xero's cloud-based accounting solutions is expected to create a unified platform tailored to the needs of U.S. SMBs. This move is in response to Xero's research showing that 78% of U.S. small businesses prioritise having integrated accounting and payment software.
Digital payment platforms, according to Matan Bar, CEO and Co-founder of Melio, can help small businesses spend more time serving customers and less time invoicing. Bar has also highlighted Melio's partnerships with major firms such as Fiserv and Capital One, which have helped bring its products to U.S. small businesses.
The acquisition also opens up access to millions of new potential users via Melio’s syndication partners like Fiserv and Shopify, expanding Xero’s market reach and reinforcing its ability to directly compete with dominant players such as QuickBooks.
Hugh Thomas, Lead Analyst of Commercial and Enterprise at Javelin Strategy & Research, has stated that this acquisition replicates key differentiating capabilities of Xero's main competitor, QuickBooks.
After the acquisition, Melio will continue to operate as a standalone company, but its bill pay capabilities will be integrated with Xero's solutions. The collaboration between Xero and Melio will also focus on a differentiated payments syndication offering, targeting banks and vertical SaaS partners.
For U.S. SMBs, the impact is expected to be substantial. The unified platform will simplify cash flow management and payments workflows, enabling small businesses and their accountants to manage transactions and accounting seamlessly in one integrated system. This should improve efficiency, enhance cash flow control, and reduce the administrative burden for SMBs in the competitive U.S. environment.
Sources:
- Switzer Report
- Fool Australia
- iocpnow.com
- Milford Asset Management
- The acquisition of Melio by Xero, a New Zealand-based business platform, presents an opportunity to leverage Melio's payments technology and partnerships with firms like Fiserv and Capital One, aiming to boost their presence in the finance sector of the U.S. market.
- With the integration of Melio's bill pay capabilities into Xero's cloud-based accounting solutions, the combined technology will cater to the needs of U.S. small businesses, offering an integrated accounting and payment software solution that prioritizes efficiency and simplifies cash flow management.
