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Introduction: A Game-Changing Deal in the Fintech Space
In a monumental move that highlights the convergence of accounting and digital payments, New Zealand-based accounting software company Xero has announced its acquisition of Israeli-American fintech startup Melio for up to \$3 billion. This landmark acquisition not only cements Xero’s ambitions to expand in the United States but also marks one of Israel’s largest-ever tech exits. The deal, which involves a combination of cash and equity, is poised to redefine how small businesses in the U.S. manage payments, vendors, and financial workflows.
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Xero, a publicly listed fintech firm based in New Zealand, is acquiring Israeli-founded, U.S.-operating payments platform Melio in a deal valued at up to \$3 billion. This acquisition includes an initial payment of \$2.5 billion, with \$500 million reserved for performance-based earnouts over the next three years. The transaction is one of the most significant Israeli tech exits in recent history and a critical expansion point for Xero, especially in the highly competitive U.S. market.
Founded in 2018, Melio offers business-to-business (B2B) payments and accounts receivable/payable solutions to over 80,000 small U.S. businesses. It has processed more than \$30 billion in transactions and reports \$187 million in annualized revenue. Its business model includes a syndication strategy, white-labeling its services to fintech and banking partners like Fiserv, Shopify, and Capital One, reaching millions of businesses indirectly.
Xero sees Melio’s infrastructure as vital to its expansion strategy, especially under its 3×3 plan: three customer segments across three key markets. Melio’s CEO Matan Bar will lead Xero’s U.S. division, combining Melio’s real-time payments engine with Xero’s core accounting features. Xero expects this deal to triple its U.S. revenue from day one and shift its business model beyond pure software subscriptions into recurring transaction-based revenue.
Melio had previously raised \$150 million in Series E funding in 2024 at a valuation of \$2 billion—a sharp decline from its earlier peak valuation. Despite this, Melio’s embedded tech model and strong partnerships remain attractive assets. The deal is pending regulatory approval, including antitrust scrutiny, and is expected to close within six months.
What Undercode Say:
This acquisition isn’t just a financial milestone—it’s a crystal-clear reflection of the direction fintech is heading in 2025: embedded finance, vertical integration, and customer-centric digital ecosystems.
1. Strategic Depth of the Deal:
Xero has long been dominant in markets like Australia, New Zealand, and the UK, but struggled to gain significant traction in the U.S., where QuickBooks by Intuit is the reigning champion. By acquiring Melio, Xero isn’t just entering the market—it’s injecting itself into the arteries of America’s small business economy. Melio’s partnerships with Fiserv and Shopify grant Xero access to 18 million SMBs through 3,500 banks—a strategic coup that could have taken years to build independently.
2. Diversification of Revenue Model:
The transition from a subscription-only revenue stream to transaction-based income gives Xero financial resilience. As software subscriptions face churn and pricing pressures, embedding payments provides recurring revenue each time a transaction flows through its platform. It’s SaaS meets FinTech 2.0.
3. Cultural and Talent Synergy:
The deal also brings in a top-tier leadership team led by Matan Bar—formerly a product lead at PayPal and a key figure behind Venmo. His track record in consumer fintech, combined with Xero’s accounting DNA, creates a potent leadership mix to drive innovation.
4. Broader Market Context:
The merger comes amid heightened competition in the SMB space. Stripe, Square, and even traditional banks are pushing hard into the small business segment with all-in-one financial platforms. Xero’s move places it back in the fight, especially as U.S. SMBs increasingly demand integrated financial tools. A reported 78% of these businesses consider accounting-payment integration a top priority, which this merger directly addresses.
5. Tech Infrastructure as a Moat:
Melio’s white-label tech model is perhaps the most underappreciated asset in this deal. It allows Xero to be both a platform and a behind-the-scenes infrastructure player—capturing revenue from both front-end users and backend integrations with third-party systems.
6. Challenges Ahead:
However, challenges remain. Regulatory approval in the U.S. may not be smooth sailing, especially with the growing antitrust scrutiny around fintech consolidation. Furthermore, cultural integration between a fast-moving startup and a publicly listed global company requires careful management to retain Melio’s agility.
In sum, this acquisition isn’t just about
🔍 Fact Checker Results
✅ Melio processed over \$30B in payments with \$187M annualized revenue
✅ Valuation dropped from \~\$4B to \$2B between funding rounds (2021–2024)
✅ Xero will gain access to 18M SMBs via Fiserv partnerships
📊 Prediction
Expect the Xero-Melio integration to trigger a ripple effect in fintech M\&A. Competitors like QuickBooks, Zoho, and even Stripe may accelerate their payment integration strategies or acquire emerging players to match the embedded finance capabilities Xero now possesses. Within 12–18 months, we’re likely to see Xero launch bundled financial services—credit, lending, and even payroll—targeting the U.S. SMB sector, using Melio’s network as a foundation. By 2027, Xero’s U.S. market share could realistically double if execution remains strong.
References:
Reported By: calcalistechcom_bbb787054e9eab3d3ec458e5
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