Xero to acquire US payments platform Melio in $3bn deal to expand SMB financial software offerings

New Zealand-based cloud accounting software provider Xero Limited (ASX: XRO) has announced a binding agreement to acquire Melio Limited, a U.S.-based small business payments and accounts payable platform, in a transaction valued at up to US$3 billion (A$4.4 billion). The acquisition is aimed at accelerating Xero’s North American expansion strategy, strengthening its product stack in the business-to-business (B2B) payments segment, and deepening its presence among U.S. small and medium-sized businesses (SMBs).

The acquisition will be funded through a mix of cash and equity, with a US$2.5 billion upfront payment and an additional US$500 million contingent on performance-based and time-linked milestones. Melio’s leadership team, including CEO and Co-founder Matan Bar, will remain onboard post-transaction, with Bar leading the combined U.S. operations and reporting directly to Xero CEO Sukhinder Singh Cassidy.

Founded in 2018 and headquartered in New York with offices in Tel Aviv, Melio has emerged as a key platform for SMBs seeking streamlined accounts payable (A/P) workflows. The platform allows users to pay and receive funds using a variety of methods, while integrating directly with accounting software—a core advantage that aligns with Xero’s vision of a unified accounting and payments experience.

How does the Melio acquisition strengthen Xero’s 3×3 strategy and boost its North America scale?

Xero’s acquisition of Melio is framed as a major milestone in its long-standing 3×3 growth strategy—focused on deepening product features, expanding into new geographies, and targeting diverse customer segments. With a growing total addressable market in the U.S. SMB segment, the deal provides an immediate uplift to Xero’s North American footprint.

Melio serves more than 80,000 customers, having processed over US$30 billion in payments in the financial year ending March 2025. Its annualized revenue reached US$187 million by March, with reported revenue of US$153 million for FY25. These figures represent both robust traction and market fit, particularly in a sector increasingly turning to digital tools for managing cashflow and supplier relationships.

Xero’s executives noted that approximately 78% of U.S. SMBs prioritize accounting and payment integration, underscoring the strategic value of this acquisition. The combined offering aims to address this demand with a unified solution, enabling accountants and bookkeepers to manage all financial workflows on one platform.

Institutional investors view the acquisition as a high-potential move, offering a near-immediate tripling of Xero’s North American revenues and improving average revenue per user (ARPU) metrics. Xero expects the deal to create long-term value through increased customer retention, higher lifetime value (LTV), and access to new growth channels via embedded finance partnerships.

What makes Melio a strategic fit for Xero’s cloud-based small business software ecosystem?

Melio brings more than just A/P processing capabilities to the table. The platform offers flexible, multi-method payment workflows, intelligent dashboards, and custom tools designed for both business owners and accounting professionals. It has built a strong presence not only through direct offerings but also via syndication—enabling white-label solutions for financial institutions and vertical SaaS platforms.

Key syndication partners include Fiserv, Capital One, and Shopify, allowing Melio to reach SMBs indirectly through their banking and financial service providers. Through this channel, Melio’s services are accessible to as many as 18 million SMBs via more than 3,500 financial institutions powered by Fiserv. This opens up a significant market opportunity for Xero, which plans to leverage these partnerships to distribute both its accounting and Melio’s payments solutions.

Melio’s Net Promoter Score (NPS) of 45 further reflects high customer satisfaction levels, strengthening Xero’s confidence in the platform’s market positioning. Xero plans to maintain and invest in Melio’s standalone payments product while integrating its features into the broader Xero ecosystem.

How are institutional investors responding to Xero’s acquisition of Melio and what are the financial implications?

Market observers and institutional investors are largely optimistic about the acquisition, seeing it as a long-term growth lever rather than a short-term revenue generator. The deal’s structure—front-loaded with US$2.5 billion in consideration and US$500 million tied to performance and retention incentives—demonstrates confidence in the acquired team’s ability to deliver outsized results.

From a financial perspective, Xero is expected to benefit from diversified revenue streams, with a greater share coming from transaction-based income as opposed to recurring subscriptions. The integration is also expected to expand ARPU through cross-sell and upsell opportunities, especially as U.S. SMBs demand more advanced payment solutions.

Analysts note that Melio’s syndication partnerships provide Xero with pre-accounting customer reach, enabling the platform to target businesses that have yet to adopt full-scale accounting software. This aligns with Xero’s broader mission of helping small businesses automate financial operations, offering new conversion funnels into its core products.

While integration costs and regulatory approval timelines remain potential short-term headwinds, the long-term strategic rationale is viewed as strong. Xero has committed to maintaining Melio’s leadership team and preserving its innovation roadmap, a decision likely to ensure continuity and reduce integration risks.

What regulatory approvals are required for the Melio acquisition to be finalized?

The transaction will be completed via a merger between Melio Limited and a newly formed, wholly owned subsidiary of Xero Limited. It is expected to close within six months, subject to a set of conventional closing conditions.

Key regulatory hurdles include U.S. antitrust clearance under the Hart-Scott-Rodino (HSR) Act and obtaining change of control consents for various state-issued Money Transmitter Licenses. Additionally, the merger requires a formal vote by Melio shareholders, which Xero has indicated it already has enough support to secure.

If the deal fails solely due to regulatory approval issues, Xero will pay a break fee of US$37.5 million, providing further assurance to Melio stakeholders.

This structured and pre-committed approach to closing demonstrates a strong level of pre-deal diligence and signals high confidence from both parties that the acquisition will proceed as planned.

How will the Melio acquisition reshape Xero’s product roadmap and long-term strategy in the United States?

With the addition of Melio’s team and technology, Xero plans to accelerate the convergence of accounting and payments into a single, end-to-end platform. This integrated product strategy is expected to increase customer lifetime value and improve margins, while delivering measurable efficiency gains for U.S. SMBs.

Post-acquisition, Melio’s CEO Matan Bar will assume responsibility for the U.S. business unit, consolidating leadership across Xero’s accounting, payments, and syndication channels. This structure is intended to promote operational cohesion and enable faster execution on product synergies.

Xero will also prioritize embedding Melio’s payments features directly into its core accounting interface, enabling small business customers to initiate, reconcile, and monitor payments within one environment. This product convergence is expected to be a key differentiator in the competitive U.S. SMB market.

Analysts anticipate that Xero may further explore adjacent fintech capabilities—such as payroll automation, invoicing tools, and real-time banking insights—building on the foundational integration of accounting and payments.