Xero Melio Small business payments

Forbes

4 hours ago

POLAND - 2025/01/09: In this photo illustration, the Xero company logo is seen displayed on a ... More smartphone screen. (Photo Illustration by Piotr Swat/SOPA Images/LightRocket via Getty Images)
OBSERVATIONS FROM THE FINTECH SNARK TANK
Cloud accounting leader Xero announced a deal to acquire small business payments platform Melio for $2.5 billion (plus up to $500 million in earn-outs). The acquisition fills a gap in Xero's offerings by integrating accounting and bill payments.
The Small Business Accounting Burden
Small businesses have a lot of challenges to deal with and managing—and accounting for—money is a major pain for a lot of them. A Cornerstone Advisors study found that:
Small businesses' use of technologies and tools for accounting
What Melio Brings to Xero
Three big strategic benefits Melio brings to Xero include:
Bottom line: Xero will be able capture small businesses' payments flow—not just their accounting ledger–a powerful expansion of its fintech ecosystem.
The New Competitive Landscape in Embedded Accounting
Xero/Melio's path to growth will face stiff competition from Autobooks. Although the Detroit-based firm's primary focus is different than Melio's—accounts receivable vs. account payable, respectively—Autobooks has shown strong growth and momentum in the US small-business fintech space, focused on embedding solutions through banks and credit unions.
Autobooks serves 60,000+ SMBs and, in 2024, and processed over $5 billion in payments through more than 500 financial institution partners. Recent developments include a(n):
What It Means for Banks and Credit Unions
Banks and credit unions take note: the Xero-Melio deal is another sign that fintech platforms are encroaching on traditional banking terrain in small business services.
Platforms like Xero and QuickBooks increasingly offer things those small businesses used to rely on banks for—bill payment, cash management dashboards, and access to credit. With Xero embedding Melio, a business owner could handle accounting, pay all their suppliers, and manage receivables all within Xero, with the bank's role in the background reduced to moving funds and holding deposits.
For banks and CUs that view fintech platforms as competitors, the pressure is mounting. Fintechs are attracting SMBs by solving pain points banks historically haven't addressed well. Many traditional banks still offer fairly basic online bill pay and siloed accounts, whereas fintech apps provide 'an all-in-one dashboard that combines banking, payments, borrowing and other financial details in a single place' to simplify money management.
For banks and credit unions that partner with fintechs, this development has upsides. Melio has been offered as a white-label service via banking partners (e.g., Fiserv's CashFlow Central for community banks). Banks that embed or resell the Xero/Melio bill-pay capabilities can deliver a more seamless experience to their SMB customers without building it from scratch.
Bottom line for financial institutions: Accounting/payments platforms are competitors—but they don't have to be. Instead, they can be new distribution channels for reaching small businesses. Banks and credit unions should explore partnerships with platforms like Autobooks and Xero post-Melio to offer joint solutions.
For banks that choose to compete head-on, the focus should be on what fintechs can't easily replicate: personalized advice, access to human expertise, and specialized lending. Banks might also invest in their own digital tools like better cash flow forecasting or simple bookkeeping plugins.
In any case, ignoring the trend is not an option. As fintech platforms become hubs for small businesses' financial activity, banks and credit unions must adapt or risk disintermediation.