Due to legal restrictions, we are unable to discuss any details around the equity raising other than the basic terms referred to in the acquisition and equity raising announcement and investor presentation released on the ASX today. Please refrain from asking questions beyond that specific details of the equity raising, as we are legally restricted from answering those questions on this call. I would now like to hand the call over to Sukhinder Singh Cassidy, Chief Executive Officer of Xero. Please go ahead.
Good morning from Sydney, Australia. Thank you for joining us today. I'm Sukhinder Singh Cassidy, and I'm with Claire Bramley, our CFO, who you've met before, and joining us virtually is Matan Bar, CEO and founder of Melio. We are very excited today to announce Xero's proposed acquisition of Melio and the opportunity it creates for our U.S. business and, accordingly, our global growth aspirations. I'm going to talk you through who Melio is and what it does, then cover the strategic rationale for the deal and our confidence in the growth path it provides. Then we'll provide some time at the end for Q&A. First, let me quickly hand to Matan to give a few introductory comments.
Hi, I'm Matan Bar, CEO and Co-Founder of Melio. I founded Melio in 2018, and I'm very proud of the growth it's achieved and the business it is today. We are really excited about bringing Melio to Xero's customers and equally bringing Xero to our own customers. I've been working with the Xero team for some time on this transaction and have been impressed with the strength of their offering, the clarity of the strategy, and the focus they share with us on growing in the U.S. I believe Xero and Melio is a very powerful combination, and I can't wait to bring my team over to join Xero and share our knowledge, experience, and joint passion for making life better for small businesses. I'll now hand it back to Sukhinder.
Thanks, Matan. It's been great to get to know you and the core leadership team over the last few months since we first found common ground in our strategic vision. Working with you so closely has been a pleasure, and we look forward to our future together. As Matan said, Xero and Melio together will create compelling long-term value. Let's get into the details of why. To kick off on slide eight, there are four key strategic pillars to this acquisition. First, there's a critical customer need in a large and growing market. SMBs and their APs want to do their accounting and payments together. They are each must-do jobs but become more powerful and efficient when integrated on the same platform. The TAM of U.S. SMB payments is also very large. Second, the combination is a powerful strategic fit for Xero.
Acquiring Melio aligns with Xero's critical three-by-three strategy and gives us a step change in our U.S. proposition, scale, and monetization. Third, this is a best-in-class asset. Melio has a world-class team and platform. It has a very strong growth track record, will extend reach to millions of SMBs, is well regarded by customers, and has a very experienced team behind it. Fourth, and most importantly, together, Xero and Melio is a compelling value creation story. These are two very complementary platforms, delivering improved unit economics and an attractive long-term growth profile for the U.S. and broader Xero group. Moving to the next slide, I'd like to briefly introduce you to Melio upfront, and of course, we will get into much more detail shortly. Melio is a world-class U.S. bill pay platform.
It solves accounts payable workflows and provides multiple bill payment options for both U.S. SMBs and their accountants and bookkeepers, helping them save time and manage cash flows better. This is critical because the U.S. B2B payments landscape is complex and fragmented. It also has massive TAM and tailwinds, which we'll get into. Melio is growing fast. It's delivered a CAGR of over 120% over the last five years, processing $30 billion of total payment volume in FY 2025 and generating average RPU of close to $250 a month. We are very excited about this business, the quality of its product, and its rate of growth. Stepping back, I want to first show you what Melio adds to our global growth prospects and the scale of our U.S. business. Our aspirations are strong, and they are credible with this acquisition.
We expect the combined business to significantly accelerate U.S. revenue growth and give us the opportunity to more than double Xero's FY 2025 group revenue base in FY 2028. This is before synergies. We continue to anchor on our Rule of 40 aspirations and delivering a balance of both growth and profitability at the group level. This revenue growth outcome is anticipated to support the achievement of greater than Rule of 40 outcomes for the group in FY 2028, with a dilutive impact in the interim as we continue to invest in Melio and the business scales. Of course, we're really excited for what this does for our U.S. business. Moving to the next slide, you can see that adding Melio to Xero immediately transforms our business in the U.S., giving us a 3X uplift in RPU and a 3X uplift in revenue.
This is a significant step up in scale and the customer value proposition. Adding Melio's capability to Xero's platform and GTM engine will significantly strengthen our position as we seek to grow our U.S. business further and capture more customers together. Now, before I go into more detail on the strategic rationale, I'm going to pass to Claire to briefly cover the transaction details.
Thanks, Sukhinder, and good morning, everyone. A summary of the transaction can be found on slide 12, with more detail later in the investor pack. Let me highlight a few key features. We are deploying our capital with discipline, using the value of our equity and the strength of our balance sheet to support this proposed acquisition. The total upfront consideration is $2.5 billion. This upfront consideration and transaction costs will be funded through the combination of a fully underwritten institutional share placement of $1.2 billion, or approximately AUD 1.9 billion, a script issuance of approximately $360 million to existing Melio investors, including current management, a $400 million fully underwritten, unsecured revolving credit facility that results in a pro forma fiscal 2025 net debt to EBITDA of 2.3 times.
It is worth noting we anticipate a meaningful deleveraging in the coming periods as we continue to generate strong positive cash flow. Finally, $0.6 billion of existing cash from Xero's balance sheet. We want to give our retail shareholders the opportunity to participate, so we will also be extending a standard SPP to eligible investors in Australia and New Zealand after the main institutional capital raise. There is some additional contingent consideration, deferrals, and rollovers totaling $0.5 billion payable over three years. The majority of this amount is linked to achieving pre-agreed outperformance targets for the combined U.S. business, with the remainder tied to passage of time, annual business objectives, and continued employment. This structure has been designed to create strong alignment to drive growth in the U.S., enhance retention, and deliver shareholder value over the long term.
The upfront consideration implies a multiple of Melio's March 2025 annualized revenue of approximately 13.4 times. If targeted fiscal 2028 revenue synergies of $70 million are also fully captured, this lowers the implied multiple to 9.7 times. This multiple reflects both Melio's high growth profile and the strength of its franchise, which Sukhinder will discuss further. Completion is targeted to be within six months of signing. Our fiscal 2026 operating expense to revenue guidance has not been updated and excludes all acquisition impacts and transaction costs. We will provide an update in relation to any impacts of the acquisition upon completion. I'll now pass back to Sukhinder.
Thanks, Claire. Let's go through the strategic rationale in more detail. Firstly, payments is a critical need for U.S. SMBs, and importantly, they want it integrated with accounting. You can see on the left-hand side, accounting jobs such as bookkeeping and reconciliation and payments jobs such as getting paid and managing cash flow are in the top five jobs to be done for SMBs, according to our customer research. The chart on the right shows that 78% of SMBs and 63% of accounts and bookkeepers want to see accounting and AP software integrated, according to broader market research we conducted about the U.S. market and customers over the past year. Bringing Melio and Xero together fulfills these needs for customers. We know there's a huge opportunity out there with millions of SMBs yet to digitize their accounting and their payments with cloud-based software.
You can see on slide 15, the SMB payments TAM in the U.S. is estimated at $+29 billion USD . Within this, the AP TAM is $14 billion and expected to reach $19 billion by 2030. There is plenty of payments TAM white space to capture. Much of our confidence comes from the fact that approximately 70% of SMB payment volume today is made using ACH and check, methods that are often slow and inefficient. As we said earlier, payments are also fragmented across many different payment methods, making the market complex as well. There is a huge opportunity to help SMBs save time and optimize their cash flows, including payments out. Around 90% of the AP TAM is not yet using software.
We're really excited to go after this and solve this critical customer need alongside our native AR or invoicing solutions at Xero, which help optimize the whole of payments workflows and processing. Capturing this opportunity in the U.S. is part of our strategy. This is a powerful strategic fit, and you can see this on the next slide. Payments are critical to Xero's three-by-three strategy, which focuses on three jobs to be done: accounting, payments, and payroll in three of our largest markets, the U.S., U.K., and Australia. As we've often said, these jobs are super jobs, meaning there are multiple areas to tackle within each of the three-by-three. The acquisition of Melio enables Xero to meaningfully accelerate its three-by-three strategy in the U.S., offering full payments capability across our own invoicing solutions and Melio's bill pay solutions that will become fully native to our platform.
Owning these end-to-end solutions means we can offer a much richer and fuller payments experience seamlessly integrated with our strong accounting solution. This is great for existing customers, but also enhances our value proposition for new customer acquisition. When combined with our embedded payroll solution coming to market in FY 2026, we believe allowing SMBs to seamlessly complete all three jobs on Xero not only gives us a step change in our offering and day-one scale, but also our ability to compete going forward. The third strategic pillar for this acquisition is Melio's world-class team and platform, and I'll talk you through this on the next few slides. Melio has consistently delivered strong growth, reflecting its strong product-market fit and quality execution. It's delivered an impressive 127% revenue CAGR over the five-year period to March 2025.
The majority of this has come from transaction revenue based on total payment volumes, i.e., TPV. The residual is float and, much more recently, subscription revenue, which launched towards the end of 2024. A key driver of revenue, of course, is total payment volume processed, which at $30 billion has grown steadily as SMBs discover the Melio platform and use it more. In the last year alone, underlying revenue growth was 88%, and Melio exited March 2025 with $187 million in annualized revenue, demonstrating its continued strong momentum. Why is this platform so successful? A key ingredient is the product, and I'll talk you through that on the next slide. Melio saves customers time and helps them optimize their cash flow when they're managing bills and accounts payable. Its modern platform offers AI-powered, easy-to-use AP workflows that save time and money.
It provides multiple ways for SMBs to pay and for vendors to get paid faster by allowing both sides a choice of payment methods and options they want to use. It also has purpose-built dashboards and tools for APs. Melio appeals to multiple customer segments, including solo traders and microbusinesses who might adopt invoicing and bill pay solutions before accounting. Its core segment overlaps strongly with Xero's current core segment of employing small businesses with 1 to 20 employees. Managed sales is also critical for medium-sized small businesses with 20+ employees who have more spend to manage. Importantly, it also supports the accountant and bookkeeper segment with new workflows, which is a nice fit with Xero's segments. This gives you a feel for what's great about Melio's core offering. I'll now spend a few moments explaining the opportunity that Melio's innovative platform enables through its syndication network.
One very important feature of Melio is its distribution platform, as it has also syndicated or embedded its offering in other key vertical SaaS and banking platforms, extending its reach to millions of SMBs. Melio has a direct-to-customer model on melio.com, which currently generates two-thirds of its revenue, and its syndication network of sites provides the remaining third. Melio's syndication platform allows financial institutions and other platforms to configure and embed a white-label AP solution for their own sites powered by Melio. For example, Melio is the platform behind Fiserv's Cashflow Central. For those of you who aren't aware, Fiserv is a leading banking technology provider in the U.S., powering over 3,000 financial institutions. Its reach alone is significant, touching 18 million SMBs. On top of this, Melio has partnerships with the likes of Capital One, Gusto, and Shopify, and continues to add more partners each year.
This enables Melio to distribute its highly regarded bill pay solution to millions of SMBs and reach scale in a CAC-efficient manner. Additionally, there are some strong network effects for Melio. As the number of vendors or payees across its whole platform and distribution partners grows long-term, that makes the platform overall more valuable, both for customers' ease and for Melio. Let's talk now about how well-regarded the Melio product is. Melio's experience is loved by customers and recognized by industry. The customer love is reflected in its NPS score of 45 and customer loyalty shown by its 71% average growth in TPV per customer in the 12 months post their first transaction. Melio has achieved industry recognition with numerous awards for the quality of its product, including being named to the Forbes Fintech 50, CB Insights Fintech 250, and Forbes Cloud 100.
The reasons for this become clear when you compare it to leading alternatives. Melio is more intuitive, easy to use, and simple for customers to onboard. SMBs and their billers enjoy less friction when using the platform and a strong choice in how they pay and get paid. The syndication offering is distinctive and a clear leader in terms of the number and breadth of partners and ease of integration. All of this is supported by a modern technology stack that was built within the last seven years and is easily configurable. Of course, a lot of this is down to the world-class team who have built this. Melio has a high-quality management team with a depth of experience in payments and tech. You've met Matan Bar, CEO and Co-Founder.
Has a deep payments background and is a serial entrepreneur in this space, sold his first payments company successfully to PayPal, where he stayed for six years post-acquisition before starting Melio. CTO and Co-Founder Ilan Atias is a tech leader with depth in analytics and AI and with previous experience at Windward and PrimeSense. President Tomer Barel is a seasoned operational and risk leader, having been the Chief Risk Officer at PayPal, where he worked with Matan, and more recently helped drive Meta's payments offerings. The broader team of 600 based across New York and Tel Aviv brings strong expertise at leading payments and tech players, and that expertise has been recognized by world-class tech investors globally who also invested in the company over the last seven years, including Accel , Bessemer Venture Partners, General Catalyst, and COTU.
Another benefit of this diverse talent base is the access to Israel's thriving tech sector, which is one of the strongest ecosystems globally for access to expertise in payments, AI, and more. We're really excited to have Matan, Ilan, Tomer, and the team join us and have access to this rich talent as we look to leverage knowledge across the group. Once the acquisition completes, Matan will be responsible for the combined U.S. business and bringing the Xero and Melio teams together to drive these results. This brings us to the fourth strategic pillar on slide 22. Bringing Melio and Xero together as two complementary solutions creates a truly powerful combination. Xero offers a strong fit in accounting and invoicing, and Melio a strong fit in payments. The combination covers the needs of diverse customer segments, including self-employed, micro and small businesses, medium businesses, and accountants and bookkeepers.
The direct and syndicated channel strength creates a valuable distribution network for new customer acquisition. A blend of both subscription and transaction-based revenue generates diversified revenue streams for Xero overall and allows us to build our ARPU through multi-product penetration. Our simple integration plan for bringing these two complementary businesses together is clear and well scoped out and will enable us to quickly leverage this powerful combination and its many levers for growth. The next slide gives you a feel for the day one scale of this combination. As I said, putting the two businesses together creates a step function for our U.S. business. The Xero North America business will have approximately 480,000 SMB customers and an ARPU of $49, with pro forma revenue in FY 2025 of $235 million.
Bringing together our payments offerings results in a total value of invoices on the platform of $56 billion and $88 billion of bills volume. Across this invoicing and bill volume, the amount of monetized TPV to date in terms of payment processing revenue is $32 billion. We see a large opportunity to drive adoption of both AP and AR payment processing for new and existing customers. This further monetization will be supported by bringing these solutions together for Xero customers in one location on xero.com. Slide 24 gives you an illustrative feel for what it will look like when we have a full bill pay solution with workflows and making payments capability embedded on Xero. The Melio offering will sit alongside Xero's accounting, invoicing, and embedded payroll experience for small businesses, all accessible to customers in one place.
Looking to the future, we see the exciting opportunity to leverage Melio's syndication capability for new potential customer reach for Xero's existing solutions too. This is illustrated on the next slide. One of the things we are excited about for the future is the potential to bring embedded accounting, invoicing, or insights to U.S. SMBs via Melio's syndication platform and network of existing partners. This slide shows you what that could look like, with a customer logging into their account, whether that be at a bank or a vertical SaaS platform, and being able to manage bank reconciliations, invoices, bill payments, or even insights, all from their one dashboard. This is a unique opportunity for Xero to extend its reach and awareness in the U.S. market and generate long-term value.
I'd now like to turn over to Claire to discuss the monetization opportunity from fully owning payment solutions and the associated ARPU for this critical job to be done.
Thanks, Sukhinder. As mentioned, acquiring Melio gives us significantly greater access to the full ARPU stack, allowing us to unlock revenue potential across both accounting and payments. With a stronger value proposition and higher-owned ARPU, we can achieve a stronger customer relationship and lifetime value from both new and existing customers. This, in turn, provides us with more potential dollars to confidently invest in customer acquisition through our direct and partner channels. As we unlock greater scale, we also become more efficient in our customer acquisition cost spend, building a sustainable CAC to LTV flywheel and assuring long-term sustainable economics.
Looking longer term, we also believe the syndication network can further enhance CAC efficiency, enabling us to reach smaller SMBs we do not currently target through our direct and AB motions and introducing them to our broader offerings. We have often discussed how scale enables greater CAC investment opportunities. We are truly excited about the potential of this acquisition to unlock significant scale in the longer term. Finally, our detailed work has given us a clear line of sight to near-term synergies, which I will elaborate on on the next slide. We are targeting fiscal 2028 revenue synergies of around $70 million and $20 million in cost synergies, and we see a clear potential for additional long-term upside. Revenue synergies are driven by accelerated customer acquisition, leveraging Xero's go-to-market engine to boost Melio's growth and ARPU expansion through our integrated offering.
The cost synergies will be achieved via economies of scale, cost avoidance in go-to-market product and engineering, and the consolidation of G&A and overheads. Beyond these targets, we believe substantial longer-term upside exists from extending Xero accounting to Melio's syndication network in addition to growth from new products like spend management. Bringing together all of these value drivers, we believe owning both subscription and transaction revenue models helps drive attractive global growth opportunities for the combined Xero and Melio business. The chart on the left of slide 28 illustrates the strong growth in ARPU and customers we achieve from day one, our aspirations for fiscal 2028, and the large opportunity beyond that horizon. I would also like to highlight the attractive metrics for comparable businesses that exhibit this powerful combination. Companies such as Fortnox and Shopify share similar characteristics and are recognized as highly valuable high-growth businesses.
These businesses are consistently delivering strong rule of 40 outcomes with a rule of X tilt, an approach that closely aligns with our own strategic focus. I'll now hand back to Sukhinder to wrap up.
Thanks, Claire. To wrap up, this acquisition will accelerate Xero's three-by-three strategy and global growth profile. It solves a critical customer need, is a powerful strategic fit, adds Melio's world-class team and platform to Xero, and together positions us to deliver compelling value creation for the U.S. business and for the group globally. Our aspirations are bold and demonstrate the power of this combination and the growth it can generate. The entire Xero and Melio leadership teams, Matan, Claire, and I are really excited about the opportunity ahead to support small businesses and their advisors in the U.S. by delivering on our purpose to make their lives better. This concludes our presentation.
I'll now pass over to our moderator for your questions.
Thank you. We will now have a question and answer session. Just a reminder, if you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. Please limit your questions to one to two at a time so other participants have an opportunity to ask a question. If you wish to ask another question, please jump back into the queue by pressing the star key followed by the number one on your telephone keypad. Your first question comes from Eric Choi with Barrenjoey. Please go ahead.
Oh, hey, good morning, team. Can I please ask one strategic question and one financial question? Maybe the strategic one first.
Just my broad thesis, which could be wrong, is it sounds like you think Melio is a good standalone business, but then there might also be specific reasons why Xero chose Melio and why Melio chose Xero specifically. I just wanted to check that logic. On the standalone business logic, can I check that you guys have sort of spent the money building the Fiserv platform already in FY 2025, but the revenues are not materially coming through yet? Therefore, the growth in the standalone business should accelerate from syndication and other monetization going forward. That is the standalone logic. On why Xero is choosing Melio, have you guys evaluated Bill.com and Melio and presumably decided Melio is the better product and tech? On why Melio has chosen Xero, just wondering, is there a defensive angle there?
Because obviously QuickBooks is the other partner, but it looks like they're trying to prioritize their own payments rather than partners like Melio. Sorry, that's a long-winded first question.
Eric, you never fail to disappoint. I loved your question. It's Sukhinder. They're always very thorough. First of all, let me start first and foremost with this 1 + 1 = 3. The answer is definitively yes. I think this was, I think, as you may or may not be aware, a captive process. Melio was not for sale. It had just raised a round in October when we first approached the company. Why did Matan and I come to a joint vision of what the two businesses could do together that he bought into versus continuing standalone?
I think we both, from different perspectives, see the same thing, which is the criticality of payments plus accounting together is two super jobs that are so tightly integrated with each other that the opportunity to have a combined value proposition on one platform is what is one of the fundamental, I guess, opportunities to win more share, more mind share, more value from the U.S. customer. As I said, he saw it from the payment side in seven years of building a B2B payments digitization platform of both workflows as well as payment processing. We see it from building, obviously, an accounting platform with native invoicing and high transaction processing already coming through our native invoicing platform, seeing the need for embedded payments. Of course, missing half the solution, which in the U.S. is quite a big solution, which is AP management, management of spend out.
The U.S. is one of the biggest payment markets in the world. I think we both saw this from different angles. Yes, we could both keep going at standalone, but the idea of getting to scale, scale of value proposition, scale of unit economics, scale of the ability to reinvest the full economics of both jobs back in customer acquisition for greater return, and getting the combined business to profitability and scale, and I would say more share faster, was what we converged on. I think that is what we each saw from the other side of the criticality of these jobs together. To answer your question of whether most of the investment has been made in the Fiserv platform, the answer is yes.
Obviously, Matan is on the call and may add, but we were very clear in looking at Melio that we saw a great customer platform, customer love, and we saw that they had built a robust technology that could offer their solutions on multiple different sites in the U.S., many sites, bank sites, sites like Shopify. I believe they will be the starting point for SMB operations. For us, the thesis that we could also have alternative distribution through these sites was a very compelling part of Melio. They spent the last two years building that platform and now are beginning to realize its scale. Of course, for those who are interested, I would point you to things like Fiserv's analyst reports in the U.S., which clearly speak to the investment they are making in adopting Melio as their embedded solution.
I think the company built ahead of adoption for its platform business and, of course, is now starting to reap increasing economies of scale in its first-party business as they move from focusing on customer adoption and great product-market fit with very good traction to optimizing things like margin. That is what you should expect. We see increasing leverage for the investment that Melio has already made. That is a very important note when you think about our confidence in getting to U.S. scale. Lastly, Bill. Bill is a great partner. We have nothing but high regard for Bill. Really, that is quite true. I think it is different to make a partner decision than a buy decision. A buy decision, we were looking at some of these unique aspects that Melio has. It is sort of a bit of apples and oranges.
We have great regard for both companies.
Sorry, Sukhinder. Thanks for answering my long-winded question. Can I maybe give you a break and ask one? Claire, you've given us really good revenue guidance by FY 2028. I wonder if you've given us all the pieces to work out. It should be at least EBITDA break-even maybe created by FY 2028 too. You can back-solve Melio needs to grow circa $300 million or more from FY 2025 to FY 2028, and you're getting better mix. The GP should be better, call it 30%. That is already like $100 million of growth by itself. Then you've got $150 million of revenue and cost synergies on top. If you put that all together, it's -$127 million EBITDA today, but it feels likely that it's a break-even to positive by FY 2028. Sorry, long-winded one for Claire.
Thanks, Eric. Yeah.
I mean, what I would say is you're thinking about it in exactly the right way. To your point, we've given some very clear revenue aspirations in terms of fiscal 2028, in terms of we are planning to more than double, and that excludes the revenue synergies. We've also committed to being back above the rule of 40 by the end of fiscal 2028 on a combined basis. To your point, if you look at the growth that we are expecting from 2025 to 2028, you look at the fact that we are getting back above the rule of 40. I would just highlight that we're looking for a balance within our rule of 40 with a rule of X tilt, so balance between free cash flow margins and top-line growth.
That is expected to continue as we continue to focus on growth and profitability, but with a rule of X tilt, as I mentioned in my prepared remarks. We have also shared in our presentation lots of information about the opportunities for growth, profit expansion, and the areas where we believe margin will expand. Sukhinder already mentioned as well, we all know that the scale aspect is really important from a valuation perspective. It is really valuable to have that scale to drive profitability and help us get back to that balanced rule of 40 by fiscal 2028. The ingredients are definitely there. I think you are thinking about it in the right way.
Thanks, Sukhinder. Thanks, Claire.
Thank you.
Thank you. Your next question comes from Garry Sheriff with Royal Bank of Canada . Please go ahead.
Good morning, team. Two questions.
One on the existing relationships, mainly when I think of Melio. Will this tie up impact the existing revenue Melio generates from the likes of Intuit and others is the first question. The next one from a Xero perspective, how will Xero's Bill.com partnership and integration change as a consequence of buying Melio?
Sure. Thank you for the questions, Garry. First, let me just address our Bill relationship, and then we can talk about Melio's growth and underlying growth with partners, including its former Intuit relationship. Look, we have a great relationship with Bill. We have high regard for the CEO. Both Matan and I know René well. I think we believe we can have a very amicable transition as we think about integrating Melio in the future, and we look forward to working with Bill on that. That is all we have to say today.
I would reinforce that we have a very good relationship with Bill, and I'm confident we'll work together on a great transition. I think on the question of Intuit, I think we gave you in the investor presentation a note of Melio's current partners. We also noted the underlying TPV growth following the exit of a major accounting partner in the U.S. who chose to build their own platform last year. You can see the underlying growth of the business, ex any accounting partners. We provided that on slide 17, which remains very strong and gives us a lot of confidence in the opportunity ahead.
I would also note that Matan and I are excited about the partners he has, many of them Xero knows, and many of them see the opportunity in the future for the potential for accounting to also be embedded as an interesting future opportunity. We believe most of them are and will be excited about our coming together.
Got it. Makes sense. Just with the Melio revenue mix and margins, how should we think about that trajectory? Maybe it is best to just take a step back and go, what is Melio's current revenue mix if I look at direct transaction revenue versus that white label syndication revenue? Can I get, I guess, a rough percentage of what it currently looks like and where you think that ends up over the next few years? A similar question in terms of the margin mix.
Can we get a sense, I guess, around your direct transaction margins versus that white label syndication margin?
Yeah, a great question. Actually, on the same slide that Sukhinder referred to on slide 17 of our investor presentation, we do actually give a mix of the revenue between transactions, float, and subscriptions. What you'll see there is the subscription element of that is currently very small because it just got introduced a few months ago. That's a big opportunity we see as we look out into the future, both from a revenue growth standpoint, but especially from a gross margin standpoint, knowing that subscription margins obviously are very strong.
I think if you look at the growth and what the Melio mix will be in the future, I would say looking at kind of peers out there and their current mix is probably a good example. We're just lower in subscription right now just because it's very new to Melio. It's a big opportunity for us moving forward, which helps us both from a revenue and a margin profile standpoint.
I would also say, and I noted this earlier, Melio very much focused on customer adoption over gross profit optimization in its traction. We agree with that decision, by the way. It's very much a strategic choice. Many of the higher margin payment methods in the U.S., virtual cards, Forex, many of these higher payment margin products have only recently launched on Melio.
To Claire's point, you can look at more mature peers and see that the mix of high margin payment products and driving the adoption of higher margin products is also a really big and important factor in thinking about, I'd say, gross margin at full scale and full optimization. Between subscription revenues, all of the newer payment methods that are high margin that are coming to Melio, this team is very much a product-led growth team that first focused on customer adoption and more recently standalone, and then certainly in the combined entity is incented to focus on revenue, margins, and customer growth as three important levers to growth with Xero, that their incentives are our incentives. They're 100% aligned. We feel very confident in the ability to optimize margin going forward.
Thank you. I'll jump back in this here.
Thank you.
Your next question comes from Kane Hannan with Goldman Sachs. Please go ahead.
Morning, guys. I suppose just the comments around rule of 40 and FY 2027 and sort of being below that. I suppose you're talking about the Melio earnings improving with the synergies and the growth coming through so that I think 7% drag it did on 2025 should lessen. You're losing the interest income post-transaction, and it's coming through as an expense. Is there any comments you can make around how much of that drag below 40 is coming from a broader brand-based marketing campaign in the U.S. you might have been planning anyway? I mean, I assume there's some assumption around that in that guidance.
Yeah, I'll take that. Kane, thanks for the question.
I think you're thinking about it the right way in terms of the timing and the impact on the rule of 40. Just as a reminder, we're obviously anticipating approximately six months to closure. The impact on fiscal 2026 is fairly limited. That dilutive impact mainly comes through in fiscal 2027. We get back above the rule of 40 in fiscal 2028. To your point, combination of combining Melio into Xero, building up that gross margin profile, as well as, to your point, from a free cash flow standpoint, the fact that we're going from a net cash position to a net debt position. All of that contributes, and we'll be absorbing that as we get back to that rule of 40 by fiscal 2028. I think you're thinking about it in exactly the right way.
I think the other comments I would make in terms of opportunities to be able to drive that growth, etc., are coming from many different angles. It's coming from the fact that we're getting scale, and we anticipate to grow revenue, continue to grow revenue very highly. We can leverage from the Xero go-to-market platform. We think that's something that we have invested a lot in. We have a lot of skills here at Xero, whereas Melio's go-to-market is actually much smaller. We're bringing together, obviously, all of the product technology, the administration and support functions. A lot there, as well as what I mentioned earlier in terms of the gross profit expansion opportunity, thanks to the investments we've made up front, the payment mix, and things like the subscription mix as it continues to develop.
Awesome.
Just Melio, just talk a little bit about, I suppose, the typical customer profile of Melio versus Xero today and how important the syndication network could be to the Xero side of things, sort of building out that funnel in the self-employed space over time.
I think you hit, Kane, on one of the key elements that we really like of this deal, which is current segment overlap and then potential segment expansion in TAM when we think about, again, our long-term prospects in the U.S. Melio today actually shares a very similar customer profile to Xero in terms of, I'd say, average revenue of the business and number of employees. For that reason, we love their workflows. They're very simple and easy to use and on board, very much product-led growth, which, of course, we also have in our direct channel.
We really love that they designed with a small business in mind. It's very similar to the Xero small business today, employing small business. Now, I think going forward, there's opportunities up and down. First of all, as we've given you in the deck, many payment platforms and payroll platforms scale with size of spend or size of employee base. Melio's workflows today are already very valuable for companies that are bigger, 20 or more employees and higher revenues. I would say Melio, in some way, is already skating ahead of Xero's functionality on the accounting side and being able to open up TAM for that medium-sized small business. Of course, that's an attractive customer with bigger lifetime values. We've said that about that customer segment in the U.S., the U.K., Australia. Melio obviously brings that segment to us sooner.
On the converse side, as you noted, the syndication network is unique in that it is embedding bill pay, which is often a job that small businesses may do before they even employ their first person. They need to manage their bills in and out and might be something they do alongside setting up a bank account, as example, or setting up a storefront on Shopify. As we look to syndication, we can and do see that many of those businesses might be employing, but many of them may be new, sole traders. I would say we are going to be very focused on spending our CAC to LTV dollars against high LTV customers in the direct business. Syndication offers a long-term opportunity for cost-efficient acquisition of that lower sole trader segment who may want to do bill payment before they ever do accounting.
Thanks very much, guys.
Thank you. Your next question comes from Tom Beadle with Jarden. Please go ahead.
Good morning. Just my first question is a follow-up on subscriptions. I mean, Melio obviously only recently launched subscriptions. I mean, can you just talk about what proportion of the base is currently paying monthly subscription fees and what that ARPU might be? I mean, do these fees apply to new customers, or will existing customers also pay these monthly subscription fees? I guess, is there any offset to transaction revenues, things like discounts if there are existing customers paying those fees? I guess what I'm trying to quantify is just how much subscription revenue might be a tailwind versus in FY 2026. That is my first question.
Sure. I am going to take a quick pass at the numbers that are on slide 17. We do not disclose the number of customers.
We disclose how early subscription revenue is on page 17. Now, Matan, maybe I can ask you whether you think subscription revenues provide a tailwind to new users or you see any existing users adopting potential subscription tiers of product.
Thanks, Sukhinder. The short answer is that we see both. Melio provides, I would say, two main value propositions. One is automation that saves time. For that, our customers are happy to pay a subscription fee. We provide them various workflow automations that not only save time, but also save costs and avoid manual work and mistakes that business owners might do without these automations. The subscription model is great for businesses that are looking to use an accounts payable solution to save time.
However, we also have a free tier for businesses that are not using Melio only to save time, but to improve their cash flow. Like many other payment products, we offer our software for free while we monetize through the transaction revenue when we help either the payor or the payee improve cash flow, expedite payments, send virtual cards, send FX payments. They might want to use us just for the money movement capabilities, for the cash flow improvement capabilities. For that, they will pay a transaction fee. When we target customers, we target both the time-saver profile and the cash flow maximizer profile. Sometimes a business is actually both, and then they'll pay both subscription and transaction fees. This applies both for our existing user base and also net new customers that we acquire.
I'd also note, just as we finish up, Matan's incentives post-deal are on the combined business, so he can really optimize as between payment revenue streams, subscription revenue streams, top-line revenue, and margin profile. All of those levers align well to the value creation of our U.S. business and are fully aligned with that.
Right. Just a second question, probably a follow-up to some of Eric's maths before. Can you just talk about some of those assumptions behind that aspiration to double revenue by FY 2028? I mean, you're obviously not including revenue synergies from Melio, but it does seem to include a lot of organic revenue growth. To Eric's maths before, I guess that might infer maybe $3.6 billion-$3.7 billion in revenue from your existing business, if I've got that correct.
I guess, what are you assuming from your existing markets or your existing business in that number?
Sure. I'm not going to give you a separated outlook number, but I think some of the things to think about as you think about growth, clearly we talked about the opportunity for Melio to continue to grow and from the investments that they've already made. A lot of the partnerships that they've set up, Fiserv and others that are coming, we are very confident and feel good about the opportunity and growth opportunity thanks to those upfront investments, thanks to the best-in-class platform that they have and how that will grow Melio.
I think when we also look, though, from a Xero perspective in terms of the opportunities as a combined business to be able to generate some of those opportunities from overlapping customers, having multi-product products, a combined offering, all of those we think are going to be really important for us as we look at both growth from Xero and Melio together. This comes back to the comments that Sukhinder was making about we really see the 1 + 1 = 3 because we've got this full complete offering to our customers. We know how important it is in terms of them having both accounting and payments together. That is why we believe that it's a big opportunity, not just for Melio and Xero separately, but also as one combined company.
Right. Thank you.
Thank you. Your next question comes from Roger Samuel with Jefferies. Please go ahead.
Oh, hi, morning all. My question is on your customer base. Melio has only 80,000 users right now, but I suppose the value of the platform is that relationship with Fiserv, which gives you access to 18 million SMBs. My question is, how easy is it for Xero or Melio to tap into that 18 million businesses and whether you should, yeah, and also whether you need to share the revenue with Fiserv?
I'm going to pass to Matan to talk about Fiserv and adoption opportunities very shortly. Just note that we like that 80,000 because it's a very deep relationship on payments, as evidenced by the high value of the job. It speaks to the criticality of the job that it's a, and if you look at their growth in TPV per user.
I think we should just note that the value of this job is deep and rich, and we think of that as a good thing, obviously when combined with the broad-based applicability of accounting. Matan, do you want to talk about Fiserv adoption and potential?
Yes, for sure. The Fiserv integration is, I think, by far the biggest integration project that we've worked on since starting the company, and we've been working on this integration for the past two years. We've made a massive R&D investment in making sure that we build a platform that can easily scale to support hundreds of partners and hundreds of banks with one code base, meaning that we'll be able to ramp up new partners at a low cost with fast integration time and high margin. That platform work was done, and now we're at the beginning of the ramp-up phase.
The ramp-up phase is very exciting because it's not only going to serve new customers that are starting to use the different banks that we will embed into, but we'll also replace the existing bill pay experience for existing customers that use the bill pay solution today. For example, if in a certain bank, there are 1,000 customers that use the bill pay solution, the archaic bill pay solution that exists within the bank today, we will replace it with CashFlow Central, and these 1,000 customers will become CashFlow Central customers, Melio customers, Melio and Fiserv customers. By migrating the back book and also targeting the front book of these banks, we feel confident about creating product-led adoption with the existing user base by replacing an existing experience and new customers that will start using our products across the different banks we integrate into.
Okay.
Got it. Can I have a sense of how many of your customers are pre-accounting?
I think that, yeah, Matan, do you want to speak to that?
Sure. I'll just say that with Melio, the main use case is obviously payments and bill payments. As Sukhinder mentioned before, when we acquire new customers, many times they start paying their first bill or even their rent when they start a business, even before they made a decision to choose an accounting software. Oftentimes, they already use an accounting software but used a very basic AP solution and decided to shift to Melio to start paying bills and manage their accounts payable through us.
In terms of what we see for our customer base, I would say there's a large portion that syncs with an accounting software, but I would say there's around half of our customers that have not synced to an accounting software and are still using either Excel or just didn't connect the accounting software that they use for another reason.
Okay. Got it. Thank you.
Thank you. Your next question comes from Rohan Sundram with MST Financial. Please go ahead.
Thank you. Hi, Sukhinder and Claire. Just a couple from me. Are you able to share your expectation around the timeframe in which this transaction will be EPS accretive? And also, with the group moving to a geared position, is there an expectation internally around delivering in periods after, or is there a target gearing range the company is comfortable to sit at over the medium term? Thanks.
Yeah.
Thanks, Rohan, for the question. To your point, I think what we've tried to lay out is some of the ingredients to be able to model some of the assumptions without specifically giving an exact date of EPS break-even. Again, going back to those forward-looking statements that we've given, we said about really strong revenue growth, obviously more than double plus the revenue synergies by fiscal 2028. Again, coming back to being above the rule of 40 by the time that we get to fiscal 2028 and remaining that balance between both free cash flow margins and growth, but with a rule of X tilt.
I think if you're working backwards from that, hopefully you can get a good feel for where we will get to, especially in the kind of second year of full ownership and the fact that as we progress towards those targets, the improvement that we see from a profitability and free cash flow standpoint, both from a U.S. business as well as the overall accretion to the company.
That makes sense. Thank you. Around the gearing piece, is there an expectation to deliver soon after?
Absolutely. Yeah. I think what we've mentioned is thanks for reminding me on your second part of the question. Yeah, in terms of the leveraging, I specifically mentioned in my prepared remarks, we anticipate to continue to generate really strong free cash flow.
We're expecting the leverage ratio to improve quickly and come down from the 2.3 that we start this transaction with. I think if you think about it, we're just giving you fiscal 2028 forward-looking statements. If you think about where we are in our journey at the end of fiscal 2028, we are anticipating to close this transaction within six months. We then obviously got an integration period. We'll be fairly early on in our journey with the combined Melio and Xero combination by the end of fiscal 2028, and we're already committing to be above the rule of 40. If you think about that free cash flow potential beyond fiscal 2028, I think it's good to be able to assume or really, really feel good about the opportunity of free cash flow generation beyond 2028 and how that can impact us from a leverage standpoint.
Yes. Thank you. That's all clear. Thanks.
Thank you.
Thank you. Your next question comes from Paul Mason with E&P. Please go ahead.
Thanks. Two from me. The first one, I just wanted to get an understanding, if you could, about the level of share-based payments that's in the $207 million OpEx expense because you guys measure rule of 40 in a way that excludes share-based payments, so we can understand sort of what the actual impact is in 2027. The second one was just on the historical shareholder base of Melio. There's some stuff just from Googling this morning. It looks like Capital One, Fiserv, and Shopify came in as shareholders in the last capital raising in October last year. I was just wondering whether they're staying on or whether they've been bought out.
Maybe you can make some comments related to that around the partnerships, whether the shareholdings had much to do with that or not.
Sure. Why don't I take the second question, and then Claire will take the first? I think it's great that Matan's partners participated in the financing. I think it showed commitment to the commercial deal and the importance of the deal to Melio. All of these investors are being bought out as part of this deal, so they don't continue as investors, but I would note that I think they are excited about the opportunity for embedded payments and embedded accounting one day to be offerings that they would potentially be interested in. I think as they are no longer on the cap table.
I think we see a lot of opportunity with these partners going forward and, of course, are committed to the syndication business. Matan, anything to add?
No. Nothing from me.
Okay.
Yeah. And with regards to the share-based payments, I do not think we disclosed the exact numbers within the $207 million OpEx numbers, but I would just say that it is very small, so minimal impact there with regards to share-based compensation.
Okay. Great. Thank you.
Thank you. Your next question comes from Siraj Ahmed with Citi. Please go ahead.
Thanks. Sukhinder, maybe just first one for you. Can you tell us, just trying to understand how this has actually those growth in the U.S. because, I mean, you already had the Bill.com partnership. I understand the economics, and this helps you with scale, right? Just trying to understand how it helps you accelerate it with the acquisition.
Is it just about being able to spend more from a CAC perspective or in an efficient manner, or is it about that syndication opportunity, which seems like it's a bit more medium term, right? Thanks.
Yeah. Sure. First of all, Siraj, I think the goal for us and the 3x3 has always been to have these three jobs serving customers fully on our platform, and then, of course, being able to realize the lifetime value and value accretion that comes from being able to offer these three critical needs. While we like our embedded partnerships, and we have several, I will say it is not easy to create the most frictionless experience for customers if you do not own the full workflows and the richer workflows.
Even simple things like this, I take it as a positive that our payments business is growing with third-party partners, but there is friction in the experience. I do think once you own a platform natively, you can create really newly imagined experiences end-to-end and very seamless for the customer in a way you can't when you have to re-onboard a customer to a partner, when you have to KYC them again. This is a very important thing to consider when you want to have an end-to-end platform. By the way, I would also say in the U.S. market in particular, financial convergence is happening. You see many sites that also want to be the hub for small businesses' financial operations.
In that regard, I'd say syndication is an interesting and strategic alternative distribution channel where we can even participate in that trend in the United States, which is pretty unique, I think. I would say much better customer experience end-to-end than think about applying things like AI on top of those experiences when you own them end-to-end and your ability to give the customer more value, more time back, less friction is high. Now, to the second point, is it important to own all the unit economics of ARPU when you're in a competitive market and you want to grow your lifetime value so you can invest faster for customer growth with better conversion? Absolutely. Does that help you get from subscale economics to realizable economics and realizable scale faster? Absolutely.
I do think it's important that the financial formula for acquisition and CAC to LTV works durably over the long term. It's just too big and too important a market to not work backwards and say, "When do you need to be there by?" For us, that was an important consideration in accelerating a decision to buy versus partner.
Got it. Just on the syndication, how soon do you reckon you can launch the embedded accounting sort of thing? Is it 12 months or it's three years? How do you reckon that plays out?
Sorry, Suraj. Can you repeat that? You were very quiet and difficult to hear.
Just the embedded accounting with the syndicate partners, how soon do you reckon we can get that, right?
Yeah.
Look, as we noted in the deck, we think that Melio's alternative distribution channel is a differentiated asset in the U.S. market. We also noted we did not include financials around embedding our own accounting on top of the syndication network in the financials. It is upside. We see a very clear path, obviously, to the numbers we've given you in optimizing our direct integrated platform with our GTM and Melio's jobs integrated. I think its syndication business will grow in the medium-term opportunity. We haven't added in the financials, but I would say we would hope to get there in the not-too-distant future. We know this because we've had our own independent demand from similar partners for embedded accounting over the last year.
I think financial benefits might be not in the model, but I think we certainly intend to have it in the roadmap, and that's on the integration slide we shared.
Okay. Claire and Matan, could you just explain why the gross profit margin of 19%? I mean, that's materially lower than Bill.com. It could be maybe mix related. And just the trajectory, because it sort of implies that trajectory that should keep increasing, right? Can you just help with how we should think through it and why?
Yeah. Absolutely. Thanks. Yeah. No, absolutely. I would just point everyone to slide 33 in the presentation deck, which talks about kind of the mix of the current gross margin profile, which includes, obviously, very low subscription levels and also some impact on the syndication margin due to the customer exit that we talked about.
It also highlights, more importantly, the levers and drivers that we see for future gross margin evolution, including, like I mentioned, high growth in the subscription revenue that has just got started, our payment method mix, as well as a mix of contribution from syndication partners, as well as all of the efficiencies from greater scale. I think we've mentioned a couple of times now, we've made a lot of upfront investments, and we are anticipating to get the benefit, the future growth for those investments that have already been made, which obviously helps us from a margin profile standpoint. Lots of opportunity as we scale, as we grow, as we change the mix of the business to be able to expand that margin profile.
Thank you.
Thank you. Once again, if you wish to ask a question, please press star one.
Your next question comes from Bob Chen with JPMorgan. Please go ahead.
Hey, morning, everyone. Two questions for me. One, just on the integration timeline. Can you just go through some of the key milestones that we should be watching for as you integrate the product and then to deliver on some of the longer-term revenue opportunities as well? The second question is more around the product packaging strategy. I think Xero has done a lot of work more recently around product packaging. How does integrating Melio change that strategy at all or maybe change the cadence of price increases in North America?
Sure. Great questions. First, let's come to the integration. We see the integration is actually fairly straightforward. Remember, Melio actually has the advantage of having a very modern stack where the entirety of the stack is quite embeddable because that's the way it's been configured.
I think that we see it as a relatively straightforward integration to embed our fully owned bill pay workflows through Melio and replace them within the next 12 months. We are excited. D&T know well how to do that. Obviously, we have done it before, and now we have an even richer technology stack to do that. I would say also, once integrated, as we have talked about, we have a rich GTM capacity at Xero. It is one of the very accretive things in the deal that our AB channel and our direct muscles allow us, we think, to market not just xero.com, but also take over marketing even of melio.com, much in the same way our direct team, many of whom come from Uber, have marketed Uber Eats at the same time as Uber Drive.
We feel quite comfortable that we can add a lot of GTM leverage quite quickly to help drive adoption of our integrated platform, but also even of standalone Melio, which is meant more for a customer who is maybe ledger agnostic and comes starting with bill pay and may not upgrade to Xero till the future. I think that this is important. We talked about the fact that we will build that accounting module for syndication, but obviously, that is a deal-driven timeframe. We will build it and work with to leverage Matan and team syndication capability to help scale that, which, again, we have not factored the economics, only the product work into the slide. Can you remind me you had one more question? I apologize.
Yeah. Just on the product packaging, I think Xero is that.
Oh, product packaging. Yeah.
Yeah.
Look, as we talked about on Xero, we stood up a pricing and packaging team a year ago because we do believe that our future is, as we have these critical jobs and sub-jobs, analytics, payments, payroll, finding the optimal place of bundling, à la carte pricing, incenting adoption, and which tiers of features go into which packages is quite important. I think that we're like, I would say we're very excited to have that team. That team very much worked on the thesis for the acquisition and already has some great ideas about how we might price and package as we come to market.
Thank you. Your next question comes from Andrew Gillies with Macquarie. Please go ahead.
Thanks very much for the opportunity, guys. First one from me.
It sounds like, from a pricing perspective, Melio has been quite sharp relative to competitors, but at the same time, it seems like you're not necessarily assuming any pricing increases to get to that 28 target. I've got kind of two parts to this question. What is scale in the U.S. market, in your view, and sort of is volume growth definitely your priority, say, for the next, at least until 28, but maybe even beyond that?
Thank you for the question. One of the reasons we really like this deal is because, much in the same way we've expressed our strategic desires at Xero to grow volume and value together, this deal does both. First of all, we are acquiring a richly and highly valued job, right?
If you look at the ARPU of the Melio direct customer, even with the two profiles within it that Matan talked about, it is a job that has a lot of ARPU yield, which speaks to its importance. At the same time, when you are able to put together with accounting and price and package it, it can accelerate customer adoption. We believe that if you look at the revenue synergies, we identified that while there are some through cross-selling, certainly, we actually identified that the largest revenue synergy opportunity is actually from acquiring new customers faster because we are together, not apart. This deal, we think, accelerates both. If you say, "What does great U.S. scale look like?" It looks like more customers that are worth more and do more with Xero.
I know that's very simplistic, but it's actually the guiding principle that has led our investor strategy through this FY 2025 to 2027 period, and we see it as a North Star.
Okay. Maybe if I just kind of think about those additional revenue synergies, right? Hypothetically, the combined Xero and Melio dataset is quite strong, particularly of the players with an open ecosystem strategy. Is it reasonable to assume that kind of looking forward 5, 10 years, there's quite a lot of new product development that could potentially be driven, let alone some of the distribution things that have been spoken about on this call?
Maybe I'll just cover that from a financial standpoint and then ask Sukhinder to cover it more from a strategic standpoint. What I would say, I think you're thinking about it the right way.
Bear in mind the revenue synergies that we've shared are meant to be achieved by fiscal 2028. Again, I kind of commented on the call. We've got to think about the timing and where we are in this process by fiscal 2028. We've got at least approximately six months in terms of closing the deal. Then we've got an integration period. I think the way that you're thinking about it longer term from a financial standpoint is absolutely the right thing. This is just a starting point from a revenue synergy fairly early on in the cycle of the combination, and we see a lot of opportunity over the, I would say, longer term to really be able to accelerate the opportunity here.
Yeah. Then coming to the combined business, I think you nailed it.
I mean, look, every time you add a job on Xero and you integrate those jobs in one platform, you have the benefit of scaling data, scaling usage, more insight into what the customer wants next. It's not like we are done with accounts payable. We see invoicing, accounts payable. Matan certainly has many other financial services offerings that he thinks the customer may want that are very well known in the market. We've got payroll. I think you are right in assuming that if you have it all in an integrated platform, you do have data scale and insight benefits that you will translate into a fuller roadmap. That is why it is important to get to scale sooner and to own these jobs natively and to have the access to not just full monetization, but full customer insight and data.
Perfect. Thanks very much.
Thank you.
Thank you. Your next question comes from Nick Basile with CLSA. Please go ahead.
Thanks very much. Just a question on the expectations for the payments term growth. You have a slide 15 detailing a few market studies as well as, I guess, an assumption that the accounts payable term might grow about 6% CAGR. I just want to sort of understand some of the thinking on that slide because you've called out the fact that accounts payable software adoption is still pretty low. 90% do not use it. Yeah, just any more color on that and how that will underpin the growth outlook for Melio going forward. Thanks.
Thank you for the question. Obviously, you can see from the footnotes that this is data that we contracted for. This is not about our customers. This is outside-in third-party research.
I would say we feel good about the methodology. Of course, I think you yourself can look to external analyst reports on the state of B2B payments in the U.S. and the digitization of those payments being kind of one of the biggest macro tailwinds as opposed to checks and ACH, which are still today the predominant method for moving money and are relatively inefficient and slow. I think it is not just our research. There is a lot of opportunity identified in external research as this as a macro tailwind. Matan, anything else you want to add on the adoption of digital payments and software?
Sure. I think even when we started Melio, we were quite, I would say, surprised by the volume of paper checks that are being transferred every year between businesses in the U.S.
There are trillions of trillions of dollars that are transferred every year between businesses via paper checks. With new technologies that are now becoming more ubiquitous in the U.S., like the Clearinghouse Real-Time Payments, FedNow, Push to Cards with Mastercard Send and Visa Direct, all these fast payment methods are creating a more valuable alternative to a paper check and giving more motivation for business owners to shift from something that they've been very much used to today to something that is much more valuable, less costly, and faster that will eventually help them improve cash flow and increase efficiencies. These are definitely tailwinds that we see digitization or can accelerate digitization.
Thanks. Maybe just one more on the product Melio versus, I guess, other peers in the market. I think you've called out the fact that there's a more seamless experience.
I think, Sukhinder, you were talking about removing some friction when you own the infrastructure. Just trying to get a sense if you're a U.S. customer of Melio and Xero combined, sort of what kind of experiences we'll have in the future come FY 2028 and sort of how much better that will be than potentially others in the market.
Sure. I think on slide 20, we did, maybe I'll go over some of the things we talked about about why we did think this was a best-in-class platform. First of all, I think Matan has spoken previously about the simple onboarding to the platform speaks very much to an understanding of how SMBs want to work. They want to work fast. They want to self-serve.
I think Melio has an experience that I'd say at Xero we long have admired, given we ourselves, I think, are known as much easier to use software than many others globally. I think that, first of all, the ease of the software really appeals to us because it's what we're also known for. Number two, I think Matan's breadth of ways to pay and get paid, I'd say, is quite extensive, and it speaks to the way the team thinks about product-led growth, how to keep offering opportunities to both the payer and payee to adopt and monetize both sides. We've already spoken about the syndication network. It is a very unique and differentiated way to grow, particularly if you believe the U.S. market has a number of large fintechs who all want to see themselves as a place where an SMB might start its journey.
We would rather participate in that growth than ignore it. We like that opportunity. Of course, we can meet new customers that way in a CAC-efficient manner, potentially. Lastly, this technology stack is modern. Does that matter? It absolutely does when you're thinking about buying a platform and a world-class asset. You want a technology that you can easily add and adapt financial services and other products onto. Of course, the quality of the team is a factor that's not on this page, but probably sits above all else. You have a serial entrepreneur who has exited before to a large global player, deep payments expertise, deep risk expertise, understands and has the pace, agility, and I'd say focus of a founder, but also a team that has seen scale before. We really like that combination.
Okay. Thanks very much.
Thank you.
Your next question comes from Siraj Ahmed with Citi. Please go ahead.
Sukhinder, just one follow-up maybe. I mean, you sort of mentioned global in the acquisition presentation as well. It's key to understand what the global opportunity is, right?
Sure. Sure. Thank you for asking the question. It's probably one of the most important questions that I should be answering. So I appreciate it. Look, of course, we've talked today at length, as we should, about the step function change in the U.S. opportunity, right? Again, creating more value for customers faster in a highly competitive market where there's still much room to play for as Xero seeks to drive to, I'd say, relevance and scale and better economics faster and sooner. Those are all great reasons to do this deal.
If you look at the combined group profile, there are two more reasons this deal is important and what it demonstrates about our growth over the long term. Number one, we want to be a driver of multi-product growth, driving more value for customers across critical jobs, across our TGOs as a way to realize the value and potential of our platform. Number two, it diversifies our revenue streams. It gives us more ways to grow, while, of course, as we talk about deepening that critical ARPU by providing more jobs on platform. I think that the combined profile remains high gross margin. We have talked about the fact that it is diluted in the short term on rule of 40, but I will note it is still profitable at the group level.
High growth, we see a nice opportunity to continue to balance growth over the medium and long term to come, the growth to come from more high-quality sources and products on the platform. Of course, being able to deliver strong cash flow through an attractive gross margin profile with diversified revenue streams.
Thank you.
All right.
Thank you. There are no further questions at this time. I'll now hand back to Sukhinder for closing remarks.
I think I got a little bit ahead of myself. Thank you for the time. Thank you, all of you, for joining the call. We appreciate the opportunity to tell the story and to answer your questions. Again, very excited about the opportunity for the U.S. and its scale and acceleration and relevance to our global growth ambitions.
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