When Xero announced its $2.5 billion acquisition of Melio, the fintech world took notice. Melio isn't the biggest player in U.S. SMB payments—its 80,000 customers and $30 billion in annual bill-pay volume are dwarfed by Bill.com's $338 billion run-rate—but its strengths run deep, and that's exactly why Xero pounced. What makes Melio a unique asset for Xero? Let's take a closer look.
The Numbers Behind the Deal
Despite only capturing about 0.05% of the $58 trillion U.S. B2B payments market, Melio commands nearly 9% of Bill.com's payment volume with just a sixth of the customer base. That means Melio's users are spending more and sticking around. For Xero, the acquisition is transformative: North America subscribers jump from 422,000 to nearly 500,000, and average revenue per user (ARPU) skyrockets from $14 to $49—tripling Xero's U.S. revenue overnight.
Fraud, Risk, and the Technical Edge
In a market where failed fraud models can be fatal to a business, Melio's technical edge is its calling card. "This is a deeply technical fintech product that has the fraud and risk completely dialed… millions and millions of transactions have run through, they fine-tuned it, and it's hard… I don't think enough people talk about that," says Michael Gilroy, partner at Marathon Partners and former Melio board member. Melio's ability to monetize payments at a gross margin of 20% or more—while keeping loss ratios in check—is a feat that many rivals cannot replicate.
Embedded Networks: Melio's Secret Weapon
Beyond the tech, Melio's go-to-market strategy sets it apart. Rather than just selling directly, Melio powers bill-pay for giants like Shopify, FIS, and dozens of regional banks. "What Melio did brilliantly, because this is all about network effects, is they said, ‘Hey, not only are we gonna go direct, but we're also gonna build an embedded solution.' And that embedded solution is where the market is going, frankly," Gilroy explains. This B2B-to-SMB syndication engine is something Xero lacked—and now instantly inherits.
Viral Growth and Platform Stickiness
Melio's network effects aren't just theoretical. "I did this quick sprint with Matan and the data science team, and we calculated K-factor, and it was, like, off the charts… SMBs are paying their bills, and people that are receiving them from Melio are not customers yet, and then they sign up to be," Gilroy recalls. This viral loop keeps acquisition costs low and makes Melio's platform unusually sticky—a rare feat in the B2B fintech sector.
The Power of a Well-Balanced Platform
Melio's success comes from more than just tech or partnerships—it's the combination. "It would be hard to pick [between partnerships, network, or simplicity] because if you lose one of them, the other two fall down," Gilroy says. "It kind of all breaks down." That synergy is what Xero is truly buying: a platform that's technically robust, simple, and deeply embedded across the ecosystem.
Why It Matters
Xero isn't just acquiring a payments tool—it's buying Melio's technical depth, viral network, and platform partnerships. If Xero can integrate these strengths, it stands to become a true challenger to Intuit in the U.S. cloud accounting and payments market.
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