Hello everyone and welcome to our investor briefing. We're really excited to share with you today some more detail on our AI strategy, our payment strategy, and really have time to answer more of your questions. So with that, Claire, Diya, Matan, and several of our product leaders are going to join me today, which I hope will make for a really informative session. So first I want to start with the fundamentals. Why are we excited? I want to recap that one thing we're really proud of at Xero is our continued, consistent, high-quality growth and profitability, and the focus we've had over the last two years on balancing that growth and profitability along with subscriber volume and value. That, plus our 3x3 focus, we believe have created a very solid, high-performing growth engine here at Xero that provides the foundation for these new investments.
The second and most important thing, of course, is that we believe we have the opportunity to be a net winner in AI. We see ourselves as having many advantages, coupled with, of course, the need to drive strongly in this direction. But together we believe there's an unprecedented opportunity with this technology to expand TAM and for us to serve customers better. The third and most important aspect of today's briefing is, of course, Melio. We know many of you want to go deeper on the Melio opportunity. We know you want to see demos. We're really excited, along with AI demos, to bring you more detail today and really to be able to answer some of your questions in this area. Okay, so what can you expect today? Well, first and foremost, the agenda will cover AI.
Then we will go into the Melio opportunity, and then we will leave plenty of time for Q&A. All right, so why are we so excited about this AI opportunity? I think what we see is an opportunity for TAM expansion. Of course, this is the case with many disruptive technologies. Gartner forecasts that there will be a 4x TAM expansion for SaaS companies. Indeed, you know, in my time in the Internet era, I've witnessed both the rise of the Internet, the rise of mobile, the rise of cloud computing from desktop. Every time we see one of these shifts in technology, what happens is the expansion of the pie. Now, what does this mean for our customers? You know, how do we realize that value?
Well, what it means is there are four key things that our customers are going to look to get done with AI. And we're already seeing, you know, this in, you know, in truth, even in the consumer side of AI. Number one, get help. If you look at the explosion of questions getting answered on ChatGPT or on Gemini or in Xero's customer support channels, it's all about getting your questions answered faster. Number two, the promise of agentic AI is really getting time back. Having those manual tasks that took you a long time, including in workflows, really get reduced from weeks for hours to minutes, or even having them all done for you. And that time saver is essential for small businesses. The third, of course, is the opportunity to get smarter now.
Really, when we think about AI and the promise of advanced intelligence that keeps learning, we need to use that intelligence to really answer questions about your own business. Again, thinking in the terms of our customers, to get smarter now on their entire business operation. Then lastly, of course, the opportunity for any one of our customers is to unlock growth, and they will look to a disruptive technology like AI to help them not just get help, get time back, get smarter, but really get to growth. That is the ultimate opportunity for any new technology to be able to enable. Now, within this, of course, Xero's critical role to play starts with our positioning as a system of record. We are indeed a system of record for our customers. That means we hold their data. We actually process that data.
We have a proprietary data set, but that comes with customer trust, privacy, security, many of the things we've promised our customers over the last 20 years. But that positioning allows us to build context, smarter and more accurate intelligence in our models when combined with horizontal technologies and LLMs, and of course, take more intelligent action on behalf of our customers. So we see this as, if you think about it, a triple threat. Really, it is the coming together of system of record evolving to be not just a system of action to give you time back, but a system of decision making when combined with the intelligence of AI. Lastly, I want to talk about the other advantages that Xero brings to this equation. It's not just our data. First-party, third-party extraction intelligence, you know, accuracy.
These are all things that we will seek to process in our data layer. But remember, we are also a domain-specific software platform. Two words are key there: domain and platform. Number one, we have been built on deep customer understanding of financial operations for our target segment, which is small businesses. By the way, we have that domain knowledge in multiple geographies around the world. Number two, that domain-specific knowledge goes across multiple jobs within the financial operations stack. So we understand payroll, accounting, payments, you know, bill pay, invoicing, tax preparation, analytics, expense management. These are all of the, you know, sub-jobs within the Xero platform while sitting in that deep vertical domain. The third advantage, of course, is our GTM capabilities. If you think about Xero, Xero has been built as a multi-channel, multi-segment platform across numerous domains of acquisition of customers.
This includes a PLG motion where we acquire directly, you know, an increasing inside sales motion. Certainly we're outbound and we have a channel motion, to accounts and bookkeepers. We have, of course, over 250,000 accountants and 4.5 million subscribers we acquire, we've acquired over the years. And if you put that together with new and emerging distribution platforms, of which actually the LLMs are one, we have the ability to keep scaling efficiently, our ability to acquire and retain subscribers. And that in and of itself is a value-added layer at Xero that helps us keep driving to scale. So now what I want to do is turn you over to Diya, who's going to go through and recap the pillars of our AI vision and how we're bringing them to life, by showing you some demos.
Thanks, Sukhinder. Now, in addition to the advantages Sukhinder talked about, we have a strong, clear, and differentiated AI strategy that we know meets the needs of our customers. And we know this because it is built on decades of experience working with them in the trenches on their accounting, payments, and payroll challenges. Our strategy has four pillars. First, we're using AI agents to automate actions and workflows across accounting, payments, and payroll so we can help our customers give them time back. For example, think about automating bank reconciliation or automatically closing their books. But that's not all we're doing. While the rest of the accounting industry is focused on building only automation agents, we're also building agents that provide actionable insights. This helps our customers run their business better.
For example, imagine being able to run detailed scenarios for your cash flow and test out different assumptions without ever having to use Excel. How cool is that? Okay, next we're reimagining what a SaaS app means in the world of AI. Traditional SaaS app workflows were static and they were unintelligent. They were built to enable users to enter data and complete tasks. However, with agents, users don't have to do tasks anymore. The agents do it for them now. Our customers need an easy way to manage the army of agents at their disposal. They need these agents connected seamlessly to each other. So the workflows and experiences within SaaS apps have to shift to actually accommodate that. Additionally, SaaS apps no longer need to be unintelligent. They can intelligently surface to you what you need to pay the most attention to.
We have already started down this journey and you will see in Lisa's demo how we are addressing this within our own product. Finally, finance, accounting, and payments are not areas that you can have errors in. People need to be able to trust their financial management systems. I'm sure you've heard LLMs are notoriously bad at this. Most people think financial management systems are all about raw data and calculations, but that's wrong. It's actually about a series of decisions such as reconciling transactions accurately to close books, closing books accurately to be able to calculate your tax. Each of these decisions builds on top of one another and creates what we call decision data. You need layers of these decision data connected via a context graph.
This graph enables agents to understand how the data needs to be used to complete the task that they are trying to automate. This is crucial information which LLMs do not have, and it gives us a strong advantage. To bring what I mean to life, let me talk about an example. Let's assume you have your raw transaction data and your bank feeds. You need an AI agent that can actually reconcile the transaction data with the bank feeds. That's called a bank reconciliation agent. You now need a books closing agent. It needs to understand what portion of the bank reconciliation data is required to be able to actually close the books and how to do the automation. Now, when it comes time to taxes, you need to understand how the books were closed, what transactions to pick up to actually be able to do the taxes.
So this is what I mean by saying you need lots of decision data at scale and you need context graphs at scale to actually be able to link everything together to help the agents give you consistent, auditable, and trustworthy answers. Now, one of the reasons I'm so confident that we can execute on this strategy is because of the team we have. Xero has an extensive track record for building AI features. Over the last three years, we've deepened the AI experience we have by hiring top-tier talent from leading AI companies. Our team of AI and ML scientists have built self-service tools for our entire engineering team that allows them to build and experiment with AI features across our different products. This has helped us further accelerate our product delivery.
Now, I can talk about our strategy and team all I want, but we all know the proof is in whether this is actually delivering value to our customers. And I can confidently say that it is. Now, small businesses are already saving an average of 22 hours per month by using our automated actions. Over 97% of help sessions are resolved without a support ticket now, thanks to our AI-enabled chat and self-service tools in Xero Central. And equally importantly, we are seeing deepening engagement and usage. For example, the number of messages that a user sends to our JAX chatbot has increased by 61% per user in the last three months. And we're seeing 12% of our customers that use Xero Analytics use our AI Insights features, even though it's just recently been launched.
Now, this feedback we're getting is because of the momentum we have in building out the depth and the breadth of our AI offering. Through FY 2026, AI has become ubiquitous across our platform because of the value it can deliver for our customers. You'll see that we are prioritizing using AI to automate the key jobs to be done that 90% of our users use, and that are the most time-consuming, like automated bank reconciliation, AI invoicing, document ingestion. This means that our AI hits at the heart of our entire customer base and creates maximum value for them. Now, beyond automation agents, we have also launched AI features to help our customers get answers to questions faster and more seamlessly, enable smarter business decisions through financial insights, and enable business growth opportunities for our AB customers via JAX and Partner Hub.
Okay, let's now hand it over to Lisa, who will now take you through a series of demos across some of the key AI capabilities we have launched.
Hi everyone. I'm excited to show you some of the AI experiences our team has built, including JAX, our financial super agent that orchestrates multiple AI agents behind the scenes to get more done for small businesses and accountants. Through these demos, you'll see what Diya talked about, how we're using AI to, one, automate actions and workflows to give time back to our customers. Two, provide actual insights to help them manage their business smarter. And three, reimagine what an AI-first SaaS application looks like in a world of agents and chatbots to unlock new business growth. Let's start with reimagined experiences. We believe the SaaS of the future requires a completely new canvas, one designed for AI from the ground up. Last year, we reimagined our entire product with this vision, starting with the homepage.
We designed for a future where agents complete tasks end to end in the background, and SaaS applications become the space where humans oversee their agents and get the insights that matter. Previously, this homepage was a to-do list of tasks for humans. Now, it's a control room for AI agents and insights, showing users what JAX has already done and surfacing dynamic widgets based on what matters most to each business. Here, we have the JAX chat interface, often a starting point for users to get help. When we first launched JAX last year, we started with an invoice creation agent to help small businesses with one of their most important tasks. Since then, we've added more agents into JAX, including one that answers help questions and another that researches finance topics on the web through our partnership with OpenAI.
Today, I'll show you a few more of the agents we've recently launched. Let's start with the JAX bank reconciliation agent. Its control widget shows up here in the upper left. Bank reconciliation is the heart of bookkeeping. Without it, you can't close your books, pay your taxes, or build your financial reports. Our bank reconciliation agent transforms this from a manual process into one where JAX completes the work automatically in the background. To appreciate what this agent does, I'll first show you a business that hasn't turned it on. This business has 118 items to reconcile, very typical for busy small businesses. Bank reconciliation was Xero's original magic. We use machine learning to suggest matches and streamline the process. But now we've reinvented it again for the AI era, and it's 100% agentic. Here's a business with the bank reconciliation agent turned on.
You can immediately see that the agent has been working in the background. Only 3 items left to reconcile, not hundreds. This helps our customers get significant time back. When we reimagine experiences across Xero, we didn't just add an agent. We redesigned the entire workflow to be AI-first. Click into the bank reconciliation widget and you get a new agent management screen. It's a live log of what the agent has done on your behalf, where you can review, override, or change how it behaves over time. You can see that JAX has already auto-reconciled 113 line items. Below, you can see details of each of those, including explanations of its reasoning.
JAX automates bank reconciliation in 4 sophisticated ways: following rules the user has sent, matching documents in Xero are predicted to arrive based on our algorithms, remembering how the user has reconciled in the past, and predicting reconciliation based on 4.5 million other users on our platform. All of this is possible because of Xero's proprietary data. We have more than a decade of transactions from millions of SMBs globally, with nuances by industry, supplier, region, and subregion, plus each business's years of history on our platform. This is hard to replicate and helps our AI reconcile far more accurately than anyone without this data. Our accuracy is over 97%, and customers are raving about the quality and time savings. It's a pattern you'll see across today's demos: deep transaction-level data powering domain-specific models, delivering industry-leading accuracy. Now that Sam's done with his bookkeeping, he turns to reviewing his financials.
First, he opens Xero Analytics AI Insights. Here's the income versus expenses graph. Sam can review this directly, but for help understanding what it means, he scrolls down to AI Insights. These suggestion chips represent the top questions businesses have. He clicks, "How is my business performing?" In seconds, he gets a clear explanation, key trends, and a summary of what to pay attention to. We've integrated these AI Insights chips throughout Xero with very positive feedback. Small businesses get immediate explanations to manage their business smarter, and accountants tell us these summaries save significant time. They can copy and send directly to their clients. This is a great overview, and Sam now has follow-up questions, so he opens up the JAX Financial Insights agent for interactive help. It's an AI analyst that helps businesses understand their data and make better decisions.
Sam asks, "Can you give me a quick summary of my revenue for the past year, broken down by service?" JAX looks across Xero data and provides exactly what he needs. He suspects his transportation expenses are getting high and asks, "How much am I currently spending on transport services?" JAX looks through the numbers and comes back with the answer, "About $1,200 a month, substantial." He's been thinking about buying a van for some time. Maybe now's the time to do it. So he asks, "We're looking at a van that costs $20,000 in cash. Can I afford to buy it next month?" Here's where JAX really shines. It analyzes all the business data, looks at historical patterns, and projects forward. JAX flags that Sam's cash position typically drops to $30,000 in February due to annual orders.
Spending $20,000 now would create a cash crunch, probably not the best idea. "What about a loan instead?" Sam asks JAX to run the numbers. "I'm considering getting a loan at market rate to finance the van. Can I afford it?" JAX analyzes profitability, liquidity, and leverage, looks up current loan rates, and calculates monthly payments. It projects that payments would be less than 5% of net profit, and the debt-to-equity ratio stays healthy. This could be affordable. Small businesses face questions like these daily: "Should I buy a van, raise prices, switch vendors?" Previously, answering them meant manually pulling data and building spreadsheet models. Now they can just ask JAX to understand the impact on their finances and make better decisions. Accountants can also leverage the JAX agent to go deeper on analytics, helping them to move up into advisory and unlock new business growth.
JAX Insights agent is truly powerful. We're the first to bring this type of deep analysis agent to finance. This space requires high accuracy, and general-purpose LLMs struggle with accounting, tax, and financial precision. Getting this right requires deep domain expertise and rich customer context. Financial insights are only valuable when built on years of transaction-level data. The average Xero business has millions of data points on our platform that we leverage for high-quality experiences. We're seeing over 90% accuracy for the Insights agent, a testament to our quality. You see the same pattern here as with automatic bank reconciliation. Millions of data points per business powers deep analysis, allowing us to achieve industry-leading accuracy in financial scenarios. Now let's turn to our accountant community. We've reimagined their experience too. This is Xero Partner Hub, our new product for accountants and bookkeepers.
We've consolidated all of our accounting tools into one integrated interface, redesigned from the ground up to be AI and insights-first and support agentic workflows natively. Accountants serve hundreds or even thousands of clients, so they need features that help them manage across their entire client base. We've built a specialized JAX agent in Xero Partner Hub that does exactly this. Say an accountant notices rising energy prices in the news and wants to check which clients might be impacted. They ask, "Which of my clients had higher expenses this month compared to last month?" Instead of digging across tabs and calculating manually, JAX fetches the numbers and presents it automatically. Jay's Cupcake Company has the highest increase of 22%. The accountant wants to reach out to their client but needs to prepare first.
They ask, "Show my most recent notes for Jay's Cupcake Company." JAX returns that information in moments. Finally, to prepare for the meeting, they need everything in one place: generate a client summary for Jay's Cupcake Company for a meeting tomorrow. In seconds, they have a snapshot of financials, upcoming jobs, and notes, all from a single prompt, saving what could have taken half an hour per client. We've received strong feedback from accountants that these features help them move into advisory services and build a new line of business. So that's an overview of some of our AI features. I can't show you everything we've launched, but hopefully this gives you a sense of what we've built and where we're headed.
Whether it's automating manual workflows to give time back, surfacing actionable insights to help manage smarter, or reimagining experiences to help small businesses and accountants unlock new business growth, the Xero AI platform delivers across the board. What makes this possible is our unique combination: proprietary data from millions of SMBs built over more than a decade, deep financial domain expertise, and AI purpose-built for the accuracy that finance demands. Thanks for watching.
Thanks, Lisa. Hopefully, that demo made you see how our strategy is coming to life across our product and why it's so valuable to our customers. Now, we shared some stats on the value we are providing customers earlier, but another way to really measure impact of these features is to directly hear from our customers. So what you're going to see on this slide is a small selection of quotes from our customers.
"For small businesses, the biggest benefit you can often provide them is measured in the hours you can save them." One small business owner using auto bank reconciliation said, "It saves about four hours per week. I went away last week and came back yesterday and only had a few transactions to reconcile, which was amazing." That's clear, tangible evidence of how we help them get time back. For accountant and bookkeeper partners, the impact is meaningful.
One AB using Xero AI analytics told us, "It's usually things like this that make my job to my clients more of value." This is the impact of automation in our AB jobs. Our tools aren't just saving our ABs' time. They're actually helping them elevate their role as trusted advisors, allowing them to help their clients manage their business smarter and unlock new business growth opportunities for their own practices. You can also see the feedback in the foundational pillars of trust and accuracy. You can see on the slide that customers say that we are extremely accurate and state that we've had zero mistakes for many of them. These proof points demonstrate we're not just building features. We are delivering true, measurable value against the key jobs our customers need done.
Now, Xero already has around 2 million subscribers benefiting from AI across both our new and existing features like bank rec suggestions and Hubdoc extraction. You can also see in the dark blue on the chart our Gen AI momentum. Our FY 2026 launches, including JAX auto bank rec financial insights, have already been adopted by over 300,000 subscribers, and these have just launched over the last three or four months. This proven adoption curve gives us high conviction that our newest, most advanced features will continue to scale rapidly across our base. Okay, now let's look at our framework for driving monetization. We have a clear approach to monetization that is simple, purposeful, and designed to deliver long-term returns. First, we know our customers appreciate and need simplicity, and we know that this is key to driving adoption of our AI capabilities.
We will aim to bundle features across plans to meet our customers' expectation without adding friction. Of course, as we bundle these features, the value we are adding rises, allowing us to monetize it accordingly. Second, we will also widen access to our customer base across these features by providing add-ons. What do I mean here? What if you want AI features but don't want the plan that has those AI features? Well, you can just buy an add-on and get all the bells and whistles of our AI features in that add-on. Finally, we want to better align our monetization to the value we are delivering. We will experiment with consumption-based pricing. We've been thinking about this carefully to ensure we get the right balance across these three principles for our customers.
This leaves us the flexibility to manage monetization across multiple business models, be it subscription, add-ons, consumption, or a hybrid of these. It also allows us to continue to tie our monetization to the actual number of small businesses that we support and the value we provide them versus the traditional seat SaaS-based monetization model followed by most other SaaS companies. Now, as you can see, we are extremely strongly positioned to capture the additional time generated by AI. We have a winning strategy, a world-class team, very strong momentum, and positive feedback. But we're not going to stop here. There's a lot more to come in FY 2027. Our primary focus is ensuring that more and more users can utilize our Gen AI features, whether it's automated features like auto bank reconciliation or actionable insight features like financial insights.
We are going to start monetizing the incremental value we provide with AI. We will start by focusing on embedding AI features across our lineup and providing add-ons to widen access, and we will also experiment with usage-based monetization. Finally, we will broaden and deepen the value we are providing our customers by saving them even more time and helping them manage their business even better with over a dozen new AI agents launched across accounting, payments, and payroll in the coming year. I am very confident that throughout FY 2027, you will see us continue to deliver more and more value for our customers and leverage our advantaged place in the AI ecosystem. Now I'll pass it back to Sukhinder to take us through the U.S. payments opportunity with Melio and Xero.
Thank you, Diya and Lisa, for all that coverage of our AI game plan. All right, now we're going to turn our attention to the U.S. business opportunity by combining accounting and payments. Now, the first and most important thing is our conviction in the strategic rationale behind the Melio acquisition remains as strong as ever. I want to remind you of the four key pillars of this deal for us. First and foremost, accounting plus payments is a critical need for U.S. SMBs. They have told us this in surveys. Non-customers have told us this in surveys. You know, we see it in customer behavior. We see it in the growth of our own payments opportunity outside the United States. What we really see is accounting, bill pay, invoice creation. These are all things that customers expect to see in the same place.
Number two, the TAM of U.S. payments specifically is large with macro tailwinds. What we mean by this, of course, is the digitization of U.S. payments, which is far behind some of the other countries around the globe and presents a macro opportunity for SMBs to really digitize that workflow and the payment itself. The second thing, of course, is this powerful strategic fit when you can combine payments plus accounting for fulfilling of that three-by-three strategy and better unit economics as we scale. The third and most important part of our decision to acquire Melio was really the team behind Melio and the platform they built. It is a well-loved platform for SMBs and ABs. It's easy to use. It has many features that are world-class. And of course, it's run by a world-class team of serial entrepreneurs led by Matan, who you're going to hear from today.
Then lastly, I'm going to come back to the fact that we are better together. When we think about Melio plus Xero, we see the opportunity to build a business model that is diversified, that drives gross margin dollars at scale and in turn LTV, which allows us to keep investing in that U.S. customer. And at the group level, it is enhancing to the group level and really the opportunity to build a long-term sticky customer value proposition that has those three-by-three jobs within it. Now I'm going to turn over to Matan, who's going to take you through the opportunity in more detail.
Thank you, Sukhinder. The U.S. SMB payments market is massive. It represents a $29 billion total addressable market. Within that, accounts payable alone is a $14 billion opportunity today, and it's expected to grow to $19 billion by 2030. Today, 90% of U.S. small businesses are still not using software for their accounts payable needs. That leaves a lot of white space still up for grabs. One of the core reasons this opportunity remains so large is the friction embedded in the U.S. payment system. As you'll see shortly, Melio has built the tools to remove that friction, playing a critical role in modernizing and digitizing how payments actually move. This creates a powerful digitization tailwind ahead of us. So now let me show you just how extensive that friction really is, because the U.S. payment system is truly unique and complex.
To understand our conviction in the U.S. payments opportunity, we first need to look at the immense friction that exists in the market. Unlike the digital-first environment in AN Z, the U.S. still relies heavily on legacy payment systems. Today, 20% of U.S. accounts payable volume is still processed through paper checks and cash. When you combine paper checks with standard ACH, 72% of the market experiences long settlement times of 2-10 business days. The challenge isn't just speed. It's also data. Legacy methods, especially checks and ACH, provide little to no remittance information, forcing SMBs into manual, time-consuming reconciliation. On top of that, payment fragmentation remains a major hurdle, where every business is required to send different types of payments to different vendors based on various preferences.
To truly empower SMBs, platforms must support a broad range of payment and acceptance methods so businesses can pay vendors exactly how they choose, domestically and internationally. Taken together, friction in workflows, fragmented payment options, and slow settlement, solving these creates a powerful catalyst for digitization and opens up significant new opportunities for monetization. Xero and Melio are extremely well-positioned to solve this problem for small businesses. Melio provides simple AI-powered bill capture and approval workflows that give business owners control without the manual work or operational complexity. A key advantage is that many of these workflows are fully self-serve, making it easy for customers to onboard, to adopt, and scale. Melio is also a category leader in flexibility and choice. Payors and payees can each choose their preferred payment method across domestic payments and cross-border payments, helping small businesses better manage cash flow and speed of payment.
Melio solves payments for every type of small business and their vendors, from self-employed users who just need a simple pay now experience to growing and mid-sized businesses that require multi-user approvals and controls. Melio also serves the accountant and bookkeeper channel, enabling professionals to manage payments across their entire client base. Whether they service small or medium-sized clients, Melio enables their CAS practice seamlessly. Melio reaches SMBs in two main ways: directly through melio.com, its standalone experience, and through syndication, Melio's embedded partnerships, expanding the network with more customers, more vendors, and more total payment volume. So in summary, we see a large and highly attractive payments opportunity where Melio has a clear right to win and strong momentum in digitizing how small businesses pay and get paid. Now let me show you exactly how this works through three core experiences.
Ilan will kick things off with a look at Melio standalone and the syndication experience through partners like Fiserv. Then Eli will walk you through the embedded Xero Bill Pay experience powered by Melio. As you watch, there are three things to notice. First, the simplicity of Melio's workflows and how they enable choice and flexibility, allowing SMBs to manage cash flow by paying any vendor in any form they choose to a self-serve, intuitive experience. Second, the significance opportunity created by syndication, driving cost-of-acquisition efficiency by embedding Melio into the platforms where SMBs already operate. And finally, our focused approach to deep embedding within Xero, making Melio a seamlessly integrated offering for Xero small business customers and their advisors. This is the holy grail for SMBs: paying a bill directly from the accounting software where the bill was first entered.
No manual data entry, no reconciliation errors, and full cash flow flexibility, all from one place, all from Xero. With that, I'll hand it over to Ilan.
Thanks, Matan. Everyone, I'm Ilan. I'm the Co-founder and CTO of Melio. I lead our product and engineering teams. I'm going to walk you through today on a quick demo of our bill pay flow and overall customer experience on melio.com, designed for small and mid-sized businesses. Let's start with how easy it is to onboard to Melio. I can sign up using my email or connect with Google, Xero, or even Intuit because Melio is agnostic to accounting software. I sign up with my email and verify it. Next, I choose my role. I can join as an accountant or bookkeeper or as a business owner since Melio supports both firms that manage clients and businesses managing their own payments. I'll add a few details about myself, my business, for KYC and KYB purposes. Once I'm done, I'm in.
I start with a free 30-day trial which lets me explore all the Melio features and capabilities. Once I'm onboarded, I land on the Pay dashboard. This is where everything comes together. Here, a business can see outstanding bills, scheduled payments, their current statuses, and bills that have already been paid. In the vendor tab, I manage all of the vendors and contractors I pay, along with the bills associated with each of them. In the bill tab, I can see all of my outstanding bills that are ready to be scheduled or paid. In the payments tab, I can track all outgoing payments and easily see their status from scheduled to in progress to completed. Most businesses start a payment by first adding a bill.
In Melio, there are five simple ways to do that, and everything is fully self-serve so you can choose what works best for you and to your workflows. First, I can connect Melio to my Gmail account. Once it's connected, Melio's AI securely scans for vendors' emails and bills attachments, pulls them in, and prepares them as ready-to-be-paid bills, waiting for me in the right place on the bill tab. Second, if I didn't use Gmail or don't want to grant inbox access, I can use Melio's inbox email address that has been created for me on the onboarding phase and can forward invoices there or ask my vendors and contractors to send them directly to this address. And then Melio automatically prepares them for ready-to-be-paid bills. My third option, I can connect Melio to my accounting system, like Xero.
Any bill created there is automatically synced into Melio, keeping everything aligned without extra work. My fourth option, if I receive a paper invoice, I can open Melio's mobile app, take a photo of it, and Melio magically extracts the bill details directly from the image. And finally, I can upload a bill straight from my desktop. Once the upload finishes, Melio automatically extracts all key information like the vendor name, total amount, due date, remittance details, and the line items information, so there is nothing I need to enter manually. Now that all of the invoice data has been extracted, there is another piece of magic powered by Melio's AI. The invoice and even the individual line items are automatically categorized, making reconciliation workflow effortless in an accounting system like Xero. That means cleaner books, less manual work, and a much smoother handoff to accounting.
Let me show you now how easy it is to pay this bill. Going back to the bills tab, I can see the bill I just added. In the bills table, I'll click pay on the first bill. After clicking pay, I see all the ways I can fund this payment. I can use my credit card, which lets me defer the cash outflow even beyond the delivery date for a 2.9% fee, or I can fund it directly from my bank account. Also, I can use the BNPL option and divide my payment into up to 12 equal installments. This is our choice and flexibility pillar in action. By offering options like credit card funding and BNPL, we empower businesses to optimize cash flow by deferring outflow while still paying vendors instantly and on time.
I choose to pay this bill using my credit card, even though my vendor is not accepting cards. Melio lets businesses pay using their preferred method of choice, regardless of what vendors choose to accept. Next, I decide how my vendor will receive the payment. Since this is a domestic vendor, I can send the payment by ACH transfer, wire transfer, or paper check. For international vendors, Melio also supports international payments, so U.S. businesses can pay vendors in dollars or in their local currency across more than 80 countries worldwide. This is the first time I'm paying this vendor, and the invoice indicates they prefer to get via ACH, so I'll select that. I'll add the vendor ACH details, the bank account number, and the routing number, and save it. Now I'll choose a delivery speed.
I can send a standard ACH that takes 2-3 business days, a same-day ACH, or even an instant payment via real-time payments. I'll choose real-time payments and continue to the confirmation page. I confirm the payment, and just like that, the bill is paid. That entire experience is intentionally simple and streamlined. And when you are paying an existing vendor, not for the first time, it's even faster as all vendor details are in the system. So as a vendor network grows, it's become even easier. Once a payment is submitted and processed, an email notification is automatically sent to the vendor, letting them know the funds are on the way. The email includes the estimated delivery time so the vendor knows exactly when the money will land in their account.
If a vendor wants to get paid sooner, they can join the Melio vendor network and expedite the payment, moving from a standard 3-day ACH to getting paid instantly for a fee. The real-time win here is vendors can also expedite the payments or change how they wish to get paid without needing to sign up or create an account. Now let me show you how business payments can be managed by an accountant or bookkeeper while final approval can stay with the business owner, so everyone works together seamlessly. First, let me show you how accountants and bookkeepers manage their business clients in Melio in a very simple way. From the client's dashboard, an accountant or bookkeeper can see all of the business clients they manage in one place, along with the tasks that need attention for each client.
Now, as a bookkeeper, I'll select one of my clients with an outstanding bill, follow the same quick and simple payment flow I just showed you, and submit the payments. Based on the approval rules set by the business owner, these payments are now waiting for an approval by the client. The client business owner receives a notification on their mobile device letting them know there are bills that need approval. Opening the app, they can review the bills and, with a simple swipe, approve the payments. And just like that, it's beautifully done, and the payments are on their way. The last one I'd like to cover today is an important one for both businesses and their accountants: 1099 filing. Within the pay dashboard, Melio has a dedicated tax tab where I can manage all of my 1099s in one place.
I can click into a vendor and mark them as a 1099 vendor. Then I can select multiple vendors and, within one click, send them a request to upload a W-9 form. Melio scans those files, validates the information, and lets me know when everything is accurate and ready. When tax season arrives, I can connect to Tax1099 and file my 1099s online directly from Melio. That's a wrap-up of the core flows I wanted to show you today on melio.com. This gives you a feel-familiar experience for small and mid-sized businesses: simple, flexible workflows, multiple ways to pay, and faster, reliable payments that give businesses real control over their cash flow. One of Melio's key strengths is that it's built on a true platform designed to support thousands of partners.
The workflows and differentiated money movements capabilities you've seen today can be embedded, configured, and integrated across a wide range of channels, from leading financial institutions like U.S. Bank and Capital One to vertical SaaS platforms such as PayPal, Shopify, and ADP. Now I'll hand it over to Eli, who will show you how Melio's platform powers Xero users and enables accounts payable for Xero customers across the U.S..
Hi, I'm Eli, and I lead our Xero U.S. product team. I'm excited to share our U.S. bill pay products and, in particular, our new Melio Embedded Bill Pay solution. This is a brand-new experience that seamlessly adds bill payment capabilities to the Xero platform and streamlines the entire accounts payable workflow. With bill payments and accounting in one platform, small businesses save time, control spending, and gain real-time visibility into their cash flow. So let's jump in. For the purposes of this demo, let's say I own an agency business called Foxglove Studios, and I want to pay some recent bills. Xero has many ways to help customers easily ingest bills into the system and streamline the accounting and record-keeping process. You can upload the bill file, take a picture of it, or even forward an email to a personalized Xero email address.
In each of these cases, our AI will analyze the file and extract the relevant information, saving businesses time on data entry. Now, let's say I just opened my email and I saw that I have some bills to pay. The easiest thing for me to do is to select my three new bills and forward them to Xero's magic email address. So I'll go ahead and do that, and Xero is going to take care of the rest. Now that I've sent my bills to Xero, I'll open up my Xero account and get started. This is our new homepage dashboard where I can get a complete 360-degree overview of my business, as you heard about in Lisa's session. As a business owner, cash flow is always top of mind for me, and I basically live in my Cash In, Cash Out widget .
But right now, I've got some bills to pay, so I'm going to use the Bills widget to get me to where I need to go real quick. I'll click on View All Bills, which takes me over to the Bills tab. Here I can see the three bills that I just forwarded to Xero. The Bills experience is where I can manage all of my company's accounts payable's needs. You can see bills throughout their full life cycle, including drafts, bills waiting for approval, or waiting to be paid, and, of course, those that have already been paid. So I'm going to go over to the Awaiting Approval tab. And from here, I can see the three new bills to pay. Xero's roles and permissions ensure that only authorized users in my account can approve the bills to be paid.
These users could be the business owner, which is me, or maybe my accountant, or a dedicated accounts payable employee. For this demo, I'm going to select the three bills and approve them. That's going to move them over to the Awaiting Payments tab. Now that these bills are ready to pay, I can get started with our embedded bill pay solution. I'll start with the streamlined onboarding flow and click Set Up Online Bill Payments. Here I can read more about our new embedded bill payment solution, all powered by Melio. Okay, now I'm going to click on Set Up Bill Payments. From here, I consent to share my data with Melio so that Melio can process my payments and my data.
Because I have some users in my Xero account and helping me with my business, I'm going to assign them permission to make online bill payments as well. When I feel good about the permissions I've set, I can click Confirm and Continue. Now I need to add a few details about my business so that Melio can perform a KYB or Know Your Business check. Any information that I've already provided in Xero will be pre-populated here so that I don't need to enter it again, and that really streamlines the onboarding process. When everything looks good, I'll click Continue. And now I'm all set to make online bill payments. I'll go back to the Bills tab now to finish up that payments workflow. Let's select those outstanding bills to pay, and I'll go ahead and click Make Payment.
When I do, I'm prompted to add my bank account because this is the first bill payment that I'm making. I'm going to select my Chase Bank account, and then I can log in via Plaid to connect it. And while I'm going through and logging in, just as a quick aside, Plaid is our newest Bank Feeds aggregator partner, and they give us a huge upgrade in feeds quality and coverage. With Plaid, we gain access to over 1,600 new high-quality direct OAuth feeds and more than 3,100 new aggregator or screen-scraped feeds. This triples the number of high-quality direct feeds available to U.S. customers and adds thousands of new connections for smaller financial institutions that previously had no feed options in Xero. Now that I've gone through and linked my account, I can pay those bills.
This is the preparation screen where I can view the bills that I'm going to pay and confirm delivery details around the payments. Again, you can see those three bills I need to pay to each of my suppliers. Now, if these bills were all going to the same supplier, I could combine them and send them all in one payment. But we're sending to separate suppliers, so that option is grayed out right now. With Melio, I can select the bank account that I'm going to use to fund this payment. I'll click the Payment Method dropdown, and you can see the bank account that I just added, as well as an option to pay by credit card, which is coming soon. Now I need to choose how my suppliers are going to receive their payments using the Delivery Method dropdown. So I'll click Add a Method.
As you heard from Ilan, Melio decouples payers and payees so I can fund this payment in one way, for example, bank ACH, and my supplier can receive the payment differently, for example, as a virtual card. I can choose to pay instantly to avoid late fees or schedule payments if I need to smooth out my cash flow this month. I'll choose the ACH option, and from here I can enter my supplier's bank details. Everything looks good from here, so I will go ahead and click Confirm and Pay. And that's it. I just paid my bills. This screen is effectively the receipt for my payment that I can come back to at any time. Customers already using Melio for bill payments are saving an average of five hours per month on their workflows.
Without Melio Embedded Bill Pay , customers have to pay and record each bill individually. They may have to log into separate supplier portals to pay individual bills, and they might even have to physically write and mail out individual paper checks. Finally, I will come on back to the homepage to wrap up our tour of the new Melio Embedded Bill Pay experience. Again, as you heard from Ilan, Melio is deeply embedded in this core Xero experience, and here is a perfect example of this in action. Once the payment is made, auto bank rec kicks in, and as you heard from Lisa, JAX will automatically reconcile the bill to the payment and magically keep your books up to date. That means that key charts like my Cash In, Cash Out widget have the latest data so I can make the best decisions for my business.
This is one of the clearest examples of why payments and accounting fit so well together. A small business can now fully manage their cash flow and get a real-time 360-degree view of their business all in one place. This is something that a standalone payments or standalone accounting provider wouldn't be able to do on their own. Don't just take it from me, our early adopters are loving it as well. One of our small business users literally told us, "I love it. It is easy to use. It is efficient. It is effective, and it is a great value add to my Xero membership." Now the Xero and Melio teams joined forces just two months ago, and we've already done so much together. In the future, we'll continue to improve the experience and build even more cash flow management capabilities, and we are just getting started.
So with that, I'm going to turn things over to Matan.
Thanks, Ilan and Eli. From these demos, you can clearly see the strength of the Xero and Melio products in addressing payments friction, helping customers digitize, save time, and optimize cash flow. When we compare Melio to the alternatives, it uniquely solves both cash flow management and workflow improvements for small businesses. It does this by offering choice and flexibility through simple, self-served workflows. Melio also delivers easy onboarding, a superior vendor network, a multi-channel embeddable offering, and a modern, scalable technology stack. Most importantly, our customers love Melio. Melio's strong NPS scores and proven growth track records are clear evidence of that.
Thank you, Matan. What you've just seen is the product in action and how Melio and Xero together solve very real pain points for small businesses in the U.S.. In this section, I want to translate that product excellence into economics: how this opportunity shows up in our P&L, how we're going to measure progress, and why we're confident in the value creation path. I'll start with the unit economics of a Xero and Melio customer in the U.S., then step through the new disclosures we're introducing, and finally show how we think about the key growth levers, TPV and take rate, and the path this gives us to our fiscal 2028 aspirations. Let me start with unit economics. On the left-hand side of this slide, we show an illustrative view of average gross profit dollars per user in the U.S..
Accounting provides steady growth profit dollar growth and drives engagement, while payments scale materially as accounts payable volume is digitized and monetized. Together, accounting and payments deliver a significantly large gross profit dollar expansion opportunity than accounting alone, underpinning long-term value creation. That differential is what really matters for the business. It gives us a powerful flywheel. Higher ARPU and gross profit dollar per customer increase lifetime value. Higher LTV, in turn, gives us more room to invest in customer acquisition and scale. As the syndication network grows, we can bring in additional users at lower acquisition cost, further reinforcing that flywheel. When we talk about Melio changing our U.S. economics, this is what we mean. We're not just adding revenue. We're structurally improving the gross profit dollar we earn per customer. Turning to the U.S. P&L.
This table shows our pro forma U.S. revenue composition and profitability split between subscription and invoice-related revenue and payments revenue, and within that, syndication versus Xero direct payments. A few points to call out. First, payments are a material part of the U.S. business. On a pro forma basis, total U.S. revenue is growing strongly, with the payments being the largest and fastest growing component. Second, we're introducing new disclosures so you can track this opportunity over time. We will provide bill payment revenue within our U.S. business split between syndication and direct customer revenue. We'll also disclose total TPV and gross TPV take rate for our direct customers. These are the key inputs for our direct revenue opportunity, which is the biggest part of the U.S. business.
Because we think about the business as a combined payments and subscription engine, we will give you U.S. gross margin and U.S. gross profit so you can see both the scale and the profitability of the combined U.S. business. Current gross profit reflects existing payments mix, the current scale of the business, and the early stage of syndication. Over time, as we improve mix and optimize take rate, scale TPV, and expand syndication, we expect this to translate into stronger gross profit dollars, which ultimately funds further U.S. growth. If you look at the payments business in the U.S., there are two primary economic drivers we focus on: total payment volume or TPV, which is how many dollars are flowing across our network, and gross take rate, which is the average economics we earn on that volume.
To grow TPV, we need more customers putting more of their spend through our rails. To improve take rate, we need to influence the mix of payment methods towards higher value options. A key point here is that neither of these is a passive outcome. Melio already has a strong track record of influencing both TPV and take rate through product design, workflow, pricing, and education. We're bringing that capability into Xero's U.S. base. Let me unpack TPV first. This chart shows an illustrative cohort of Melio customers over time. What you see is that once a small business starts using Melio, TPV doesn't stay flat; it ramps. On average, TPV increases around 75% in the first 12 months as customers gain confidence and migrate more of their bills and cash flow management onto the platform.
Beyond year one, TPV continues to grow at a double-digit rate as Melio drives deeper penetration and adoption of more bills in their platform. There are multiple ways to unlock that: adding more payment workflows and use cases, improving existing tools so it's easier and more intuitive for customers to move more spend onto the platform, and targeted education, both for small businesses and accountants and bookkeepers, to help them see the benefit of consolidating more of their payments with us. So the opportunity is not just to win a customer once, but to grow the value of that customer over time as we digitize more of their payments. As this scale expands, payments adoption becomes a more powerful driver of long-term growth than just subscription growth alone. On the other side of the equation is take rate.
As TPV per customer grows, Melio has multiple monetization paths on each transaction, depending on what the customer needs. For example, ACH provides high volume and engagement. Cards deliver large transaction volumes and strong absolute gross profit dollars, but a lower reported margin due to the accounting treatment. In contrast, other premium methods such as instant or FX payments generate higher margin revenue that further scales gross profit. Each method has a different revenue and gross profit profile. We actively manage the mix to drive absolute gross profit dollars, not just percentage margins. This is very much about product and data, not just about pricing. In-product prompts can show a customer how paying by card might extend their cash flow by 30 days, for example. Vendors can be offered the option to expedite payments for a fee. The takeaway is that take rate is controllable.
Through design, data, and experience, we can guide both payers and payees towards higher value methods that work for them and for us. When you bring TPV and take rate together, you can see why we have strong conviction in the financial opportunity. When we announced the Melio acquisition in June of 2025, we set out clear aspirations for the combined business. All of the dynamics we've just walked through (richer unit economics, TPV expansion, and an actively managed take rate) underpin those aspirations. As a reminder, we said, "We see an opportunity for the combined business to more than double Xero's fiscal 2025 group revenue by fiscal 2028." That supports our goal of delivering greater than the Rule of 40 outcome for the group in fiscal 2028.
For Melio specifically, this pathway, scaling TPV, improving mix, and expanding margin, provides a clear line of sight to EBITDA break-even, which we expect to occur on a run-rate basis by the end of the second half of fiscal 2028. We will continue to manage this with disciplined execution across the Xero group, focusing on revenue scale and incremental margin expansion, underpinned by ongoing efficiency improvements, strong cost control, and disciplined capital allocation, including targeted investments in AI to drive both productivity and long-term growth. To summarize the key takeaways: Melio is a powerful strategic fit for Xero. It solves a critical customer need in U.S. accounts payable. It brings a world-class team and modern platform with deep capability in B2B payments. And it creates material value for Xero through improved U.S. unit economics.
That value is delivered by improving the two key revenue drivers we've discussed—TPV and take rate—which together provide a clear path to Melio, EBITDA, and to the fiscal 2028 aspirations we've outlined for the whole group. Importantly, we already see strong momentum in the combined business, in both the financials and the operating metrics, which is why we are confident that the growth and monetization pathway is not just theoretical. It's underway. Before I hand back, I want to briefly touch on integration. Integration is progressing at pace, and we are really pleased with where we are. We have seen great progress, as you've seen, with regards to the product and the product embed and the availability of all of the functionality of Melio in Xero. Also, as we look at our go-to-market, those teams are coming together and working together to really drive the best outcome for our customers.
So as far as integration goes, as you can see on this slide, some really great progress across product, across go-to-market, but also areas like customer experience has been progressing, as well as some of our systems and processes. So as a reminder, we see great value creation opportunities as we bring Xero and Melio together. It will accelerate our growth. It's going to really improve our U.S. economics. It's offering a diversified portfolio for our U.S. business, like we have globally in our other regions. And this is the value of Xero and Melio together: we can accelerate our growth, we can drive profitability, and we can really meet those aspirations that we laid out to you in June. So with that, I'm going to now pass to Sukhinder to wrap up.
Okay, so to recap what you've heard from us today, first and foremost, I want you to hearken back to where we started today with the AI opportunity and why we are excited by our strategy, the opportunity that we see and that you saw demonstrated in our product demos, and then, of course, how we think about the 2027 game plan. Secondly, we covered Melio, both the macro themes that led us to do the deal, of course, deep demos on both the standalone and embedded product, and then, of course, some of the new disclosures we're providing around this business to help you understand it better. And now, of course, we'll head right into Q&A.
Thank you. We will now start the question and answer session. Just a reminder, if you would like to ask a question, you'll need to press the star key followed by the number one on your telephone keypad. A quick reminder before we open the Q&A: this investor education and briefing session is focused on the AI opportunity and the combined Xero and Melio U.S. opportunity. Xero has not provided a trading update and won't answer any questions on current trading performance. Your first question today comes from Eric Choi from Barrenjoey. Please go ahead.
Morning, guys. Thanks very much. Yeah, so just in the spirit of this being an AI update, maybe can I ask an AI-related question, maybe to Sukhinder or Diya first? And maybe if I could ask a second question just around the Melio break-even guidance that you've given us, maybe for Claire. But I guess just on AI, you've given us lots of information on your strengths and advantages, so I just had a couple of follow-ups. I was just wondering, how does Xero plan to protect its data in an AI world? And I wondered if you could comment on Melio-specific moats against AI disruption as well. So on slide 8, you've said you're going to do distribution partnerships with LLMs, so I was just wondering, does that look something like what Intuit and OpenAI are doing?
And if so, how does Xero protect its data in such a scenario? And then on slide 19, suggest B2B payments is quite under-penetrated, more so than B2C. Just thinking for Melio, are there quite a few things that have made it hard for competitors, let alone AI? I'm thinking about things like regulatory licenses, KYC, physical check infrastructure, those sorts of things. If you could talk through that, that would be helpful as well.
Great. Thanks, Eric, for the question. So why don't I start on the first question? And I think Diya and Matan, I'm sure, will both comment on the second question. Diya may comment on the first as well. So it's important to remember, obviously, that our customers' data is protected by our commitments to them. This is why we have a responsible AI framework that commits to them how we will protect their data, because it's one of the things they look to us for. Now, when you think about our relationships with any new potential distribution channels, they can range from a deep integration with a BizDev deal. They can look like ads. We know that OpenAI has actually already talked also about its own desire to have ads. Or it can look like a self-serve integration.
Many of these channels will open up what's called an MCP server, where we could go agent to agent and allow certain outputs from Xero to be published into that framework. But again, the most important thing is, regardless of how we think about the upstream distribution opportunities with the bigger, I'd say, consumer-like chatbots, the most important thing for us is that we take our responsible AI framework and we embed that framework in any way that we integrate any customer data into any third party. And we do look to that so that will constrain how we might do a self-service integration, for example, because we have a responsibility to protect. And I think that if we do a deeper deal, we may seek custom terms in order to protect our customers' data.
It is important to note that many of the terms of service of some of these LLMs themselves protect customer data, but I think our customers expect us to go above and beyond and ensure that's the case in any way we seek to take advantage of those new distribution channels. Diya, anything to add before we talk about?
Yeah. What I'll add there is Sukhinder is absolutely right, Eric. The thing to think about here is it's not the output that is important. As we talked about when we talked about what makes our data unique, it's the layers of decision data. None of that data will ever, ever leave our system. So it's not like you can actually reproduce the output in any way. So that's one thing. The second thing is, today, most of these LLMs actually do say if you connect to them through their developer APIs, they do not use your data for training, and that is well known and well understood. And then what I'd add on top there is they will work with us through our MCP servers, which then limits the type of data they can get from us. They can get direct output from us.
They cannot get anything deeper than that.
Do you want to pick up on the second question? I think Eric was also asking about payments, payments AI, payment moats in a world of AI. Do you want to start, and then over to Matan?
Yeah. So in a world in payments in the world of payments, I think when you think about payments, what's really important is for us to be able to enable our customers to speed up their cash, right? The cash they get in their pocket, and be able to manage their cash flow. If you think about AI agents, they will absolutely play a critical role here. Think about being able to chase your customers to pay you, right? That today is done manually, can be done with an automatic agent, and will be done with an automatic agent. Think about making that AI agent intelligent in terms of what kind of late fee to apply based on your customer's lifetime value and relationship with you.
On the other side, think about an AI agent enterprises have this, where you have tons of people figuring out when you should pay your accounts payable, right? You do deep analysis on terms, conditions, what will maximize your cash flow. Again, applying AI agents to these, you can do that. So you can manage both sides of the equation, including workflows like approvals, etc. So we believe Matan and I strongly believe, and I'll let him speak here, but we strongly believe AI does have a strong value to play in payments as well, as long as you ensure that before any money moves out of a bank account, you get final approval from the user.
Yeah, absolutely. I agree with everything Diya mentioned. And I'll just add, on both the user experience and the infrastructure that we've built, AI is used across the user journey, from saving time on data-in workflows, like taking a photo of a bill and automatically capturing the details of this bill, to automating the risk and compliance engine that powers all the money movement that we enable small businesses across our different partners. And with our standalone experience, AI serves a critical role in making sure that we keep the money movement fast, as Diya mentioned, secured, and protect from risk, and comply with the different regulations. So across the user journey, from the infrastructure to the user experience, we embed AI to make sure that our user experience is competitive and answers our customers' needs.
I'll add one last point that is very obvious in payments, but I'm going to make it anyway. Payments is a consumption business model. As the world thinks about business models that are both fixed and variable, payments is not only something that I think users want a lot of oversight of. Regardless of how we use AI functionality, it is already a consumption-oriented business model.
Excellent. Thanks, Sukhinder, Diya, and Matan. Can I just do one quick follow-up with Claire? Very helpful that you've given us that Melio break-even on a run rate basis by second half FY 2028. I guess the natural question from investors and sales side will be, "That's a target. How do you mechanically get there?" And I was just wondering if you could just entertain my logic, because it seems fairly easy to build a bridge to get there. So if we look at Melio OpEx, it was $175 million in FY 2025. That probably grows. So let's say Melio OpEx could be circa 200 by FY 2028. So obviously, for Melio to be break-even, you need gross margin dollars to be close to 200 by FY 2028. So let's say you guys are forecasting gross margin dollars to get to $150 million-$200 million by FY 2028.
We also know the gross margin percentage is 20%-25%. So if you gross that $150 million-$200 million up, you're basically implying an FY 2028 revenue for Melio of $700+ million, call it $700 million-$750 million, maybe a bit better if you do better. But what does that all mean? If you look at first half 2026, you did $75 million of Melio revenue growth already. So you're annualising $150 million, and you're going to wind up at, call it, circa $400 million or $400+ million in FY 2026. So to get from $400 million to $700+ million in FY 2028, you're basically saying you need to deliver the same nominal amount of revenue growth in 2027 and 2028 that you did in FY 2026. And arguably, there might be more positive revenue drivers in 2027 and 2028 that you've seen in 2026. So sorry, that was very long-winded.
I'm just trying to make the point that you can kind of get there extrapolating current Melio revenue trends.
Yeah, I think thanks, Eric. And I like the way that you're thinking about it. I think the fact that you've zoned in on gross profit dollars, for example, and the strength that we have from that revenue scale as Melio continues to grow. We've seen really strong growth historically, as we've already disclosed. And then as we talked about in the prepared remarks, the value of those customers does build over time. So that's obviously a growth opportunity, in addition to the growth that we foresee to get from syndication over time as well. So as you said, a lot of opportunity coming from that revenue growth and revenue scale, which then does drop through to gross profit dollars. And to your point, from an OPEX standpoint, I think we've said from day one at the announcement of this great acquisition that we do see operating leverage.
A lot of the investments from an OpEx standpoint have been made upfront. We don't anticipate OpEx to grow at the same pace as revenue, definitely giving us an operating leverage. As you say, if you look at that revenue growth, if you consider the gross profit dollars that that contributes and the operating leverage that we get from OpEx, that's how we get to our fiscal 2028 run rate of EBITDA break-even for Melio.
Awesome. Thanks for the answers and the update today. Thanks.
Thanks, Eric. Thank you.
Thank you.
Your next question comes from Lucy Huang from UBS. Please go ahead.
Thanks, Sukhinder, Claire, and the team. I've got a couple of questions. So firstly, I think, Claire, you mentioned you think the take rates are quite controllable moving forward in terms of the ability to kind of grow and direct customers to a higher payment type. Just trying to think through kind of, let's say, FY 2028, what do you think is the optimal mix of, say, the premium payment types relative to kind of card versus ACH? I think you've given us a pretty interesting graph there. Where do you think premium payment types could become in terms of the proportion of the base there?
Yeah, so thank you, Lucy. So what I would say is I think it's about the combination of everything. So it's the combination of that mix of the more premium, high-margin products, but also the scale and the volume that we get from all of the other transactions as well. So we are looking at a combination and a solid mix to be able to drive those gross profit dollars. And as we talked about, we do think that there is an opportunity to influence the margin and the product mix over time. But we are not just reliant on gross margin expansion from a gross margin rate standpoint. We're definitely finding that right balance between volume, scale, high transactions, high volume, as well as margin expansion through scale, through syndication, and through product mix.
I don't know, Matan, if you want to add anything about our ability to influence, but I'll pass to you.
Yeah, obviously, I agree with what Claire mentioned. I will just say something that is true for the payments ecosystem in general. With scale, there are opportunities to improve margin. And in addition, Melio's business is diverse. We have our standalone experience, and we have our syndication partnerships that will also help us improve the margin. As a business, as a payments business, we care about serving our customers, increasing our revenue, and increasing our gross profit dollars. And we will continue to enable, as you've seen in the deck, many types of payments because that's what our customers require. When they pay their vendors, they send virtual cards, they do international payments, they pay by card, they do ACH, they do instant payments. And the portfolio of payment methods is one that we're going to enable, continue to optimize.
Due to all the friction that we've talked about in the presentation, these create many monetization opportunities that we're capitalizing on, have been capitalizing on in the past, and will continue to capitalize on in the future.
One last thing, Lucy, just to point out, which is probably obvious, but I'm going to say it anyway. We are very focused on gross profit dollars. I think this is very critical. You can focus only on margin percentage and miss the dollar opportunity. For example, let's say you drop lower margin payment types, and thus you don't get the TPV per user. That would be a miss, right? So Matan's point on coverage, on payment coverage is as important as the individual mix and having higher margin products in the mix. You want to capture the full wallet. And as Claire showed you, TPV per active user is a key metric for a payments business. And for us, it's about the gross profit dollar accretiveness of this business to our core business.
Thank you. That sounds really clear. Then maybe just some early comments, any color on what proportion of, say, Xero customers in the U.S. that are now switching on Melio within the software and processing payments now, just so we can get a gauge of what the ramp-up could look like in the near term?
Yeah, I think it's very early. I mean, I think that to give you a sense, I think we launched the experience in December.
Yeah, Jan, it went GA, so even a little bit earlier.
Yeah, so we went GA in Jan. So we've had 30 days of data. What I will say is the data's very encouraging. I think we're really excited to see what users are taking advantage of. And obviously, Matan has points of comparison, not to be shared on this call, but points of comparison with other partners so he can compare how Xero is doing relative to other partners. And I think we're encouraged by the features we've been able to turn on fast that are very useful and beyond what we had in our bill functionality.
Our qualitative feedback also is extremely strong from our customers.
Yeah.
I'll start with the last one from me. Just the 2 million subs using JAX AI within Xero now, are you able to give us some qualitative feedback on how extensively they're using it? Also just in terms of kind of the monetization strategy you talked about, kind of the three options there, do you think overall this will drive a step change in ARPU growth for the business longer term?
I can take that.
Yeah, Diya's going to take it.
So for the first question, JAX AI, yes. So when we think about JAX, JAX is our super agent. So when you think about our product service area, there are multiple agents. There's a bank reconciliation agent. There's a financial insights agent that you saw. There's an invoice agent, etc. The way we use JAX is JAX is our super agent that orchestrates all these agents. Yes, it has a chatbot interface, but it also works in the background across the UI to ensure all these agents work seamlessly together and connect to the UI in an intelligent way. And the real reason behind this is that we believe that SaaS apps will transform over time, right? You will move from having UIs where users input information to having users manage agents.
Instead of having to manage multiple agents, as you can imagine, if you buy different pieces of software or if you try to build your own agents, we want to make it easy and convenient for users to be able to have the ability to talk to one agent. Think of it as a manager of agents, right, that you can talk to to be able to get all your work done across your financial platform. So that's why we use JAX and AI interchangeably. Now, your second question was on monetization. So the way we think about monetization is threefold. One is we know we have to keep things simple because if you start throwing different agents, different ways of monetizing, etc., at customers, they're going to get confused.
The second principle for our monetization is driving adoption, which is one of it is obviously making things simple, but the other is also increasing access. So where are certain features available? If they're available in certain plans but not in other plans, but people want to use it, can we provide some kind of add-ons? And then the third thing is actually future-proofing it with different business models. We all know SaaS business models are going to change in the era of AI, and they're going to move more towards usage-based, consumption-based, etc. And so how do we future-proof this?
So what we do with our monetization efforts is try to balance these three: keeping it simple, driving adoption, at the same time being able to future-proof it so that as people use more and more and as more and more value is delivered, we have the right business models in place to be able to capture that value.
I think, Lucy, I want to pick up on one thing we're going with Diya said and answer one more question that you asked. So first of all, when you asked, "Is there a stepped function change in ARPU?" Look, we hope to grow ARPU over time. We talked about that 4x expander of TAM that Gartner talks about when they talk about the opportunity for SaaS companies, and particularly SaaS companies, in our case, that are vertical domain experts and systems of record. I want to come back to that core principle. That's what gives us the right to play, to be a system of decision, a system of action, and an orchestrator of multiple agents across multiple jobs to be done. So that's important. But our goal is to make sure our customers get value. So we are playing the short, medium, and long-term game here.
If we're going to drive adoption, you're not going to try and just capture all the ARPU games upfront because what you really want is customers getting utility from the product. You also want to, as Diya said, look to some of those principles. We don't need JAX. We don't need JAX to get a one-time step change in ARPU. What we need to do is keep delivering value and keep orchestrating multiple agents and really, I'd say, future-proof our own ARPU growth by making sure we're not trying to take it all in one lump sum. You can see we've already been pretty measured relative to our competition in being thoughtful about how we monetize and when we monetize.
This year, we went all through the year effectively in beta and said to the market and said to all of you, "We're going to look to monetize in 2027, but we're not going to try and take it all now before our customers see the value, or we can show them the value." I think it's important. Last point, I want to come back to the 2 million you asked about. So remember, what we gave you as 2 million is the number using traditional AI. And I think this is very important because we have long had AI in our product. We have it in data ingestion. We have it in OCRing. By the way, we have it in auto bank reconciliation suggestions. Many of our competitors count things like suggestions in their overall AI number. We've chosen to disclose our traditional AI and then our newer features.
So we're proud of the 2 million, and we're really proud of the 300,000 because that 300,000 is excluding customer service on the features launched in 2026 under JAX and that new AI GenAI banner. So we're trying to give you a view for our traditional AI strength, including things that others may count as AI that we count as historic AI, plus our newer GenAI adoption. So hopefully, that becomes clear now in the disclosures.
That is great. Thank you so much.
Thank you. Your next question comes from Bob Chen from JPMorgan. Please go ahead.
Hey, morning, guys. Just two questions for me. Maybe first one on AI and that monetization angle. Understand we could see some lift in overall ARPU. How does the input cost of tokens and stuff come into play? How should we be thinking about the gross margin of a software business? I mean, historically, it's been in the high 80s%. Does the AI monetization sort of pathway change how we should be thinking about the gross margin of your business?
Do you want to take this, Claire?
Yeah, sure. Absolutely. So I think what we're looking at and the whole industry is looking at is how does this evolve over time? I think we're not anticipating significant changes in the gross margin profile of our Xero core subscription business. We obviously will be monitoring the impact of additional costs. That gets factored into the way that we do pricing, the way that we do the monetization, and how that scales. And I think, as Diya said, very much focused on adoption first to make sure that we're bringing that value to customers. But from a cost standpoint, that is all managed in that kind of value proposition, so not expecting material changes over the medium term to our subscription gross margin numbers.
It's also one of the reasons that we do want to make sure that the model is at least future-proofed insofar as consumption will affect costs, costs of tokens coming down rapidly, but then different features have different compute. And so it's one of the reasons you want to be able to have at least the readiness for consumption and starting to message that that's something we want to weave into our business model.
Okay, great. And then maybe a question on Melio. I think there's a couple of mentions around syndication sort of ramping up and becoming more important. We did see Capital One make an acquisition recently of Brex. Interested to understand, does that impact sort of any relationships there? And then also sort of longer term, how important is syndication for you to get to your 28 sort of implied numbers?
Yeah. Please.
Yeah, maybe I'll just do kind of a high-level view in terms of assumptions of syndication. Then I'll pass to you, Matan, to follow up. So I think the way to think about syndication is, yes, we do anticipate it to grow and increase over time. But as you've seen, our direct business also is growing at a rapid pace. So I would say the proportion of the syndication as a percentage of the overall business isn't expected to materially change over time. But on both melio.com and the syndication business, we obviously anticipate really strong growth and future opportunity ahead. Specifically on Capital One and Brex, do you want to make a high-level comment on that?
Yeah, sure. So Capital One and Xero now have a very strong partnership. The Brex acquisition was in order for Capital One to have capabilities to target corporate clients with corporate card spend control solutions. The Melio partnership is targeting a completely different segment with a completely different product. We're targeting small businesses with cash flow needs across the Spark Capital One card business unit and the Capital One bank unit. And so Capital One have reassured us again and again that our partnership has been very successful, and they're putting more resources to make it even more successful in the future. So we see no risk due to the Brex acquisition. And we're happy for Capital One for doing this great acquisition to target yet another segment that they were less active in.
All right. Fantastic. Thanks, guys.
Thank you.
Thanks, Bob.
Thank you. Your next question comes from Nick Basile from CLSA. Please go ahead.
Hi, Sukhinder and team. Just two questions from me. The first one, I guess, just tries to strike, I think, the heart of what you're presenting in terms of when you're showing us the time-saving and potential automation benefits for customers of using the JAX AI assistant for bank reconciliation and then the link at the end to Melio's embedded Bill Pay product. What sort of percentage of new users do you think will look to combine your Bill Pay and accounting suite within the Xero ecosystem? And can you give us a bit more of a guide on, I guess, current attach rates or any sort of targets you may have as part of your go-to-market in the future? And then I'll ask the second one as well to give you some time to sort of think about the answer. But it sort of goes to slide 39.
There's a few moving parts in the business, of course. But on the one hand, we see TPV volume for Bill Pay slow a little bit sequentially, but at the same time, you've seen your gross GPV take rate improve. So that kind of speaks to the controllability aspect. And of course, then your revenue is also sequentially sort of one of the best periods. So with that said, I'm just trying to get a better sense of what kind of drivers we think are going to be the biggest part of the story to hit your 28 aspirations from a revenue and, of course, the EBITDA run-rate perspective. How much should we be focusing on improving take rates versus maybe the Bill Pay volume TPV also expanding and just the balance?
Sure. Why don't I start? Why don't I take the attach question, and then Claire and Matan may take the second question? So if you think about the attach rate first of all, you have the attach rate of AI, I think you asked about, and the attach rate of Melio, and then there's the attach rate of products like Syft. I think it's important to realize that when we did the business case for Melio, Melio's customer base, I think at the business case time was around 80,000. We had about 480,000 subscribers. But relatively speaking, we were very clear that the synergies from this deal actually come less we do have cross-sell synergies, but they come far more from winning the white space customer.
So while we do intend deeply to drive attach, that's why we embedded Melio on Xero, and I think we're on a goal to increase utilization across all these products, including AI. I think it's important to just remember that the attach rate on Melio specifically to the U.S. business is only a small part of the synergy story. Far more of the revenue synergies get driven by actually just winning the marginal new customer faster than Xero alone could. That is the vast majority of the synergies. Now, over time, of course, the sheer number of customers who attach we hope increases well beyond the aspiration period. But within the aspiration period specifically, more synergies are actually driven by winning net new customers, even though we will continue to drive attach on Xero.
Sure. And I'll take the second part of your question.
So with regards to how to think about how to see the mix between TPV, take rate, etc., when it comes to our fiscal 2028 aspirations and our Melio break-even goal and the run rate as we exit fiscal 2028, we've talked about scale, and I think it is important to remember that. We can see the really strong growth and therefore the growth in TPV that we expect over time from existing customers as we expect them to grow over time, but also new customers that are coming on board. And then I think with the leverage of the go-to-market support from Xero as well, there's lots of opportunities, as we've talked about, in terms of synergies over time. So I think definitely think about scale. Think about that kind of TPV value and how we can get value from customers as well as new customers coming on board.
We do anticipate improvements in overall take rate. We do anticipate improvements in margin rate expansion, as we've talked about, coming from scale, but also from improved product mix. As Matan and I both mentioned earlier, from syndication as well, which will help from a margin expansion standpoint. So I think focus on the scale element of that and then the contribution of gross profit dollars, as Sukhinder mentioned earlier, in terms of how that helps us drive to EBITDA as well as the operating leverage that we talked about from an EBITDA standpoint.
Yeah. And if I can add from a customer perspective, and as Sukhinder always says, customers expect Xero to shift from being a system of records to being a system of record and a system of action. And that means embedding more capabilities into the Xero product: Bill Pay, obviously, one, invoicing, Gusto partnership, payroll. All these products have different margin profiles, margin percentages. But at the end of the day, this is what customers expect from us to do. And at the end, we're going to provide more value, and we're going to capture and capitalize and monetize this value, increasing revenue, increasing gross profit dollars. But each of these capabilities have a different profile. But that's what customers want, and that's what Diya and the Melio team are delivering.
Okay. Thank you.
Thanks.
Thank you.
Thank you. Your next question comes from Garry Sherriff from Royal Bank of Canada. Please go ahead.
Good morning, team. Good update. Thank you. Three questions. One for Claire on the different payment options, another one on synergies, and a final one for Matan. If I start, Claire, with the payment options, just trying to get a sense around who takes a credit risk, as an example, for BNPL or other payment options versus getting paid immediately.
Sure. So I think in terms of as we look at our overall product portfolio, there is some credit risk, and we've had that factored into our financials when it's with us, when it's on our rails, and we're offering that. We're obviously not providing bank funding, but there is obviously some loss risk factored into that. So just to remind you that it isn't a kind of a credit risk as such. It's more of a loss risk, like an operational risk. So just think about it not in terms of bank credit risk, but more in terms of operational loss risk. So the operational loss risk sticks to us. There isn't a credit or bank risk that we're taking in any of these payment methods.
Yeah. And if I can add, so Melio or with the embedded system, we don't provide any loans in terms of our own balance sheet or underwriting. We have partnerships that are enabling us to do that. But as Claire mentioned, we have payments and money movement, and that is the risk and compliance capabilities that we're very proud of. And these are the ones that we've built in-house and monitor all the money movement from both a risk standpoint and a compliance standpoint. But in terms of credit, as Claire mentioned, it's not pure credit where we provide loans. This is just payment, money movement, risk, and compliance operations.
Okay. No, that's clear. Thank you very much. Matan, while I've got you, if I had to go back to ground zero, I mean, if you had access to the AI coding power that's available now and continues to accelerate, how long do you think it would take you to replicate the Melio software platform as it is?
I think the infrastructure that Melio has built is one that required a lot of investment, both across our infrastructure to do money movement at scale and also in terms of the workflows and platform to enable all these partners and the standalone experience that we power today. I will say that Melio is benefiting greatly by leveraging AI, becoming better and better every day, every week, every month by getting more data on our customers, on payments, across risk and compliance. And so our infrastructure today, because of AI, is significantly better than what it was in the past. And so our competitive advantage is becoming stronger and stronger, not weaker and weaker.
One thing I think is important and I mean, I think this goes across both Melio and Xero, so I think it's worth highlighting, Gary. Remember that at Xero, as an example, our wiring is to thousands of banks, right? We have plumbing. Melio has a tremendous amount of plumbing. We have data plumbing. Melio has compliance plumbing, payment rails plumbing. If you think about the infrastructure to support the payment types into multiple other payment rails, this is not just a workflow software. I think this is quite important. We both have deep infrastructure and plumbing. So I don't think let's say you, I don't know, went to a gen AI platform and you coded the simple workflow of, I don't know, the first screen of Xero. Great. I tried doing that on Claude Code because I play with all these tools.
At the end of the day, you're still going to need to hook up thousands of bank feeds. You still need to process the data. That data is proprietary. We use it to train our models. That is the infra that makes us, I'd say, much stronger than just the workflow software, which we also are very proud of. It's very elegant. We're going to keep reimagining that software with AI. But I think the plumbing of payments and the plumbing of financial operations and the financial data that sits in our system, this is not something that, I don't know, you're not going to knock on JPMorgan's door with an agent and say, "Let me in, please." So I think it is important that the infra of our businesses are substantial value adds to our customers.
Yeah. Yeah. Elegant, and don't disagree. Elegant response. Thank you. And the last question just around synergies. Around the cost side, I mean, you did flag the consolidating of offices is done and that you're also looking to do integration of shared services that's underway. Can we get a sense of the annualized savings on both of those, and maybe the timing would be great?
Yeah. I'm not going to share the exact details from each of those. What I would say, though, compared to the plans that we set out when we did the announcement, we're very much on track to where we expect it to be at this point from an integration standpoint, end-to-end, including cost synergies. To your point, offices was one example, customer support alignment. I think as we bring the go-to-market teams together, as we bring a lot of the support functions together over time, we'll continue to see ongoing benefits. But we're on track. I'm not going to share the exact numbers, but we're on track to where we were said to be. We're going to continue to see those benefits come through in fiscal 2027 and into 2028 as well.
Thank you, team.
Thanks, Garry.
Thank you.
Thank you. Your next question comes from Siraj Ahmed from Citi. Please go ahead.
Hi. Can you hear me okay?
Yes.
Yes. All right. Just first one, maybe for Sukhinder and Matan. On the overall U.S. growth for Xero, right, both accounting and payments, now that you have Melio, you have the scale and the unit economics, when should we expect a pickup in the U.S. growth, Sukhinder and Matan? I mean, are there some stage gates that we should be looking at? Is it Gusto, or is it the brand spend we have discussed before? When should the, I guess, the underlying Xero business pick up from our perspective? When should we think about that?
So, Siraj, first of all, the underlying business is growing faster every half year. I'll remind you that the business, when I arrived as CEO, compared to the last half where we grew 33% on an underlying basis, we're really proud of. And that growth is steady. That's because we think of ourselves as although this business is money losing, and we've been very clear on that because we're in investment mode, we still want to be disciplined allocators of capital. So I think we're very happy with the U.S. growth rate on an organic basis. And what we've said is we expect that to accelerate with Melio. That's because Melio itself is a high-growth story, of course. It's very high growth. We don't need them to be higher growth, quite frankly. They're already growing really well.
But on the U.S. side, we've said that those revenue synergies imply that there would be accelerated growth because we think we can pick up more new customers from white space together versus apart with a fuller value proposition. So that implies we see acceleration of U.S. growth. But the way we think about it is steady as she goes and accelerating. So I mean, I think that is our expectation. We don't believe that you need to believe in hockey sticks. You need to believe in steady acceleration of this business. And that's what the business model with Melio was predicated on.
And then the last thing I've said before is when you want to get those hockey stick-type growth rates, I think we want them to be sustainable, which guides everything from how we invest in product to even when we decide to put the pedal on the gas. And if we want to make a brand investment, as an example, which would be a substantially further investment in U.S. CAC, but that would be a multi-year investment. So that's how we think about making these investments.
Yeah. I have to say, as someone.
I think it's a distinct lag . Sorry.
Yeah. Just to add a quick comment, as Melio has joined Xero officially 3.5 months ago, and I have to say we've launched as someone that's coming from the outside, the velocity in which we launched the pilot and then reaching GA was beyond any of our expectations. We were a startup that is moving fast, joining a bigger company. And so we had some expectation that maybe things would move slower, but the speed was pretty incredible. And so we're very proud at the velocity and quality of the product that we've launched to our customers. And as Diya mentioned, it's reflected already with customer feedback that love the combination between accounting and financial services. Again, we were very confident always about the hypothesis of combining the two together. That's what customers want. That's what they say.
But it's so great to see it live and so quickly after joining.
So Siraj, you had a clarifying question?
Yeah. Just asking, Sukhinder, I mean, so you're sort of saying that big step up in brand spend, which sees a gap in the U.S., that's not sort of there in the FY 2028 sort of aspiration. You still will have I mean, you have more dollars, gross profit dollars now to invest, but there's no step up in the CAC that you're thinking of at this stage.
Well, what I'm saying is the U.S., I think the way to think about it is when we made the Melio announcement, it was predicated on steady acceleration of organic U.S. growth with our standalone business because of the synergies of adding the payments job and appealing to more customers. And then, of course, Melio's own growth rate. But you didn't need to think about astronomical growth rates. And that aspiration was without the expectation or, let's put it say, the commitment to U.S. brand spend. Now, as I've always said, U.S. brand spend is a choice for us. And as we are generating more efficiency in the core business, I think we will update you when we're ready to talk about U.S. brand spend. My point is simply, the 2028 aspiration was done without it.
We want to be disciplined allocators, but we didn't need to hockey stick our own organic growth model because we have been steadily accelerating. We think Melio accelerates the appeal of Xero.com to U.S. users independent of brand spend even further. But again, I don't think we're chasing hockey sticks on a one-year basis.
Got it. I just have two more. So the second one, I mean, all this AI disruption stuff, let's talk about going on offense on AI, right? I mean, like Diya said, just accelerating your product development. You're hiring for a GM for mid-market. You could actually do your own payroll in the U.S. as well, right, potentially with the new code development and stuff like that. So how do you think about that? Is the Xero in three years' time more it doesn't need more Apple ecosystem, but you can actually develop it more. But do you still think you still work with partners where you can actually is it just keen to understand how you think about that?
Well, first of all, I'm very happy to talk about playing offense. This is what we talk about all the time at Xero. And I'd say that's the mode we're in. I mean, we are still playing offense. We are playing offense on the need to go after the U.S. opportunities, one of the largest SMB markets in the world. That is what led us to acquire Melio. We can all sit back and wait, but accounting plus payments plus payroll, we've been very clear, this is key to what U.S., not just SMBs worldwide, expect. And it led us to make a nonlinear move within the last 12 months. Syft was an example playing offense that predated but was a precursor to our AI investment. We were very clear that analytics and then analytics powered by AI would be in our future.
We moved fast to make that acquisition. On JAX, we have moved very fast, not just to get invoice creation out the door, but as you've seen, to keep adding multiple agents orchestrating on the platform. I think you can count on us to not sit still. We consider all of these disciplined but offensive moves to go capture the TAM available to Xero, which is immense. I love that you're identifying even future moves we can make. Our job, of course, is to stay aggressive, stay offensive, keep thinking about what drives customer value for this segment we know and love deeply, whether that's the medium segment opportunity, whether that's payroll in the U.S.. These are all opportunities for us. Our goals, of course, is to do that in a disciplined way. We're going to stay aggressive.
We're going to keep trying to make the right moves for our customers. Of course, that all needs to fit into our capital envelope. We need to take measured risk and smart and thoughtful risk. We're going to stay very lean forward on AI because we think we have the capabilities to be a net winner in this equation.
Just last quick one. Just on syndicated, direct or syndicated, I know that Claire mentioned syndicated will be similar in proportion, but it does seem like there's a bit more focus on direct. Just wondering, has something changed on the syndicated side, maybe with Fiserv? I know they're going through changes. Has that onboarding been a bit slower? And also, no mention about embedded accounting as well. Just keen to understand how you're thinking about syndicated, whether something has really changed there.
I'll take a minute. Accounting, why don't you start?
Yeah. I'll just kick off. What I would say is no change. So don't interpret any change in terms of the opportunity that we see for syndication over time. We always anticipated both the direct and the syndication to grow fast. And that's why it's a great opportunity ahead. So no concerns on the syndication. Things are moving well as we look forward. Lots of opportunity ahead. And we haven't specifically we've always had in future opportunities about the syndication opportunity with accounting. So as Matan said, I think we're three and a half months in. So that's still on the table. It's just not necessarily a focus in the immediate term. But we are very excited about the scale, revenue, and gross profit dollars that we can get from syndication and just as excited now as we were three or four months ago. So yeah, nothing changed.
Both give us a lot of opportunity ahead.
Yeah. I think on embedded accounting specifically, if you recall at the announcement, we said embedded accounting of Xero into Melio and its syndication partners was future upside that we did not size into the aspiration because the syndication of bill pay is getting delivered and deployed now. And that is Melio's core focus. And we do not want to take their core focus off of first and foremost delivering on that bill pay promise across bank and software partners. That is the basis on which we would, I think, get the benefit of that distribution if we wanted to embed accounting. Separately, I think we announced at the half, if you recall, or we shared at the half, of course, that we at Xero did an embedded accounting deal with Bluevine. We're really excited. It's our first embedded accounting deal.
So while our, I would say, our subsidiary in Melio.com is deploying bill pay syndication at Xero, we want to learn. So that's very much an early learning deal for us where we have to build anyway the connectivity and APIs to be able to do syndication at scale of embedded accounting. So we've always said we are very open to embedding accounting in other stacks. But first, Melio needs to build its bill pay syndication base and deploy it. Meanwhile, on the Xero side, we're learning with our first partner, Bluevine. And that puts us in a good position. When Melio and its partners are ready and want to take embedded accounting or any version of it, we will always already have our first learnings. But that is very much a speculative bet. We said it at the announcement, and we said it was not included in the aspirations.
Very clear. Thanks .
Thank you.
Thank you. Your next question comes from Roger Samuel from Jefferies. Please go ahead.
Oh, hi. Good afternoon. Just a very quick question on AI. If you look at your U.S. software comms, the revenue that they derive from AI is still pretty minimal. You mentioned about being flexible in how you monetize AI. I'm just wondering, from FY 2027 onwards, I mean, when can we start to see a material contribution from AI in the business? What sort of percentage of revenue do you expect coming from AI over time?
So I think I'm going to harken to Diya's guidance. First of all, we will monetize AI. But our question is, how do we keep it simple while future-proofing it? If you think about that and what our customers expect, they'll expect if you think about simplicity and adoption, we'll have to think about what's bundled, what's consumption, what's not. So I think, again, we're going to keep looking at AI as a TAM expander over the next number of years, not a kind of one-shot and done. Some of it you might be able to see directly if we choose to monetize a portion of it consumption-oriented and some that you may see bundled into our different subscriptions with different features. So that's the way to think about it.
I don't know that I would offer any further guidance now on 2027 other than we've said that we will monetize.
Yeah. I definitely think about this as a medium-longer-term play. It's about doing the right thing for the customers. All of our pricing, including whether it's AI monetization or pricing in general, is always focused on value to our customers. And that strategy in terms of approach hasn't changed. So making it simple, making it value-based, making sure that it gives customers the opportunity for that adoption, as Diya talked about, is definitely our priorities as we continue forward and think about the benefit that we can get from AI monetization, but over, I would say, the medium to longer term.
Got it. Thank you.
Thank you.
Thank you. Your next question comes from Andrew Gillies from Macquarie. Please go ahead.
Afternoon, guys. Thanks very much. Most of my questions have been asked, but I'll just have a crack at sort of on slide 25 is my first question. Just the average gross profit per direct user. There's obviously been a fair bit of growth historically. There's some good detail on TPV per customer as well. But it has seemed like historically, take rate has been a pretty material driver of that GP dollars figure that you mentioned, Sukhinder. Can you maybe provide a little bit of additional color because that includes subscription as well? How much of it's mixed shift? And what are some of the other drivers of take rate expansion that potentially are not reflected in that number that are newer initiatives that we might see over the next few years? Thanks.
Do you want to take the slide to start?
Yeah. Sure. So yeah, I think what we'd say to your point, definitely an opportunity that we've seen in terms of improved take rate over time. But we continue to see that as a future opportunity as well. And I think we talked about the value that a customer has with us over time. And Matan talked about we have available all of the different payment methods. And we do see people adopting more of those options over time. So I think the way that I would think about it, though, is TPV and scale and revenue, as I mentioned before, is key ultimately to our aspirations. It is key to that Melio EBITDA break-even aspiration that we have towards the end of 2028.
However, we do see that opportunity to continue that gross take rate opportunity over time, which does help us from a margin expansion standpoint as well.
I want to make sure that we answered your question. Is there something else on the slide specifically you were looking to get answered? I just want to make sure if we've missed the specifics of your question.
I'm just trying to understand. The subscription's included in that. Obviously, this is kind of the last three years. So I'm presuming there's more upside. What does that sort of gross profit dollars per user?
On subscription.
Actually look like? Say as a percentage that, yeah, indirect.
Okay. Sorry.
Indirect as a percentage, say, of the serviceable addressable market. Just trying to understand how you get that confidence in getting to 2028 because there are some pretty material drivers there?
Okay. All right. So I think just to separate them out, obviously, and I'll just make sure, and if I'm not doing justice to your question, I apologize, and we'll take another crack. So if you just think about our subscription gross profit dollars, those are going to be driven over time by three things. And I think you hit it. Price rises, mixed shift. Mixed shift itself is driven by whether customers choose to take a product or additional products in a bundled or add-on setting, right? So we have pricing and packaging choices. As Diya talks about, AI, Syft, bill pay on Xero, we can choose whether we put that bundled or unbundled. But I think price rises and then increasing attach.
And that attach can come, again, you can choose to do it through mixed shift, or you might choose to take something that also has a consumption basis like payroll or is going to be consumption-based in the U.S. or payments, in fact, is consumption-based. So I think subscription gross profits are really driven by increased product utilization as expressed by you're on the same package and you get a price rise for the added value, or you step up a package and take more features, or you take more add-ons. That literally will be the way I think we express the dollar expansion in subscription. And then, as we talked about, on the payment side of the business, there's a whole payments driver slide, as you know. And in that slide, we really talk about you want to deepen the TPV per user, how much per customer you're getting.
I mean, as customers do more with you, it is a business of depth where you're getting more TPV per user, right? So that's more users, certainly. And then payment mix type is your take rate on any given transaction. So that is the way I would think about kind of the combination. So you drive payment dollars, obviously, through TPV per user, volume of TPV, and payments. And then you're going to drive subscription by increased attach. But that can be expressed as mixed shift or price rise or add-ons. Welcome to our business.
That's clear. Then just on AI, really quickly, what are some of the misconceptions? It seems like, although competitors are developing a lot of products relatively quickly, there was quite a lot of focus on proprietary dataset, the importance of context for LLMs. I think you mentioned the knowledge graph as well, or Diya did. What are the actual physical things that those products you don't have that would sort of what would the customer see? I think you mentioned 90% accuracy for the insights agent. Are those other products that don't have that context potentially limited in some area? And how should we think about that?
Sure. I'll take an initial crack, and then Diya can go much deeper. On the differentiators, I think, is what you're asking about. So first of all, you hit on one key one, accuracy. When you think about there are many more, and Diya's way more equipped than I am to talk about them. But Connie, if you hit one of the key differentiators, I'll talk about one other one. The differentiator on accuracy is all because we have 20+ years of transaction data, right, of reconciliation data, of data to fine-tune our own models, right? By the way, the average native AI startup also doesn't have thousands of bank feeds. They don't have document ingestion. We're taking in vast amounts of data and processing it in order to improve the accuracy and the functionality of our services.
So that is very kind of unseen but very important when you think about the advantage of our data. I think that's one differentiator. The second differentiator is I think we have been maybe more understated in talking about how much AI is in our products. You have competitor claims of millions of users of AI. Well, yes, we have millions of users of AI as well. If you look at things we would classify as traditional AI that others are classifying as Gen AI, auto bank reconciliation suggestions is a perfect example. So there are these differentiators even within the products we've launched already. But Diya, do you want to talk about other differentiators?
Yeah. Other differentiators. One thing I'll weigh in on is financial insights accuracy is 90%. Auto bank rec is 97%. We are hyper-focused on accuracy because we have that decision data in between that Sukhinder is referring to. It's not just raw data. But in terms of other differentiations or other areas that we're differentiated, the other is the workflow. I don't think anybody that I know of in the industry is really rethinking what it means to have a SaaS app where you have agents. And agents do everything for you. And what does that mean for the experience of a SaaS app? This is why one of our key pillars is how do we redefine the entire SaaS app, not just launch a bunch of automation anywhere where you have to traverse to cumbersome workflows?
The second thing that we are also thinking about is how can that we don't hear from the market. Everybody's running after automation of tasks. We also strongly believe AI can make you deeply make you grow your business better by providing you insights, right? And those insights can be insights a user comes to ask us for, like Lisa showed, with financial insights when somebody is looking for buying a vehicle. Or it could actually be proactive insights that we raise across the product to say, "Hey, by the way, did you know this customer hasn't paid for this long?
Would you like to do something about it?" Or, "Hey, did you know here's a better way to manage your money?" Or, "Here's a better way to manage your transaction." Or, "If you paid your tax right now, you'd incur less tax than if you paid at the end of the year." So those are the places we're going to, which is not just automating your tasks but also making you more intelligently be able to manage your business. Those are the biggest differentiators, I think, in addition to the data and the trust.
Actually, there's one more, I think. I think the way we've approached AI on Xero Partner Hub I think you know we're reimagining the partner experience. So I think everybody on this call certainly knows Xero enough to know that we are very, I'd call, accountant and bookkeeper-friendly. It is a key channel for us. And I think in everything from how to equip them to be, I'd say, better when they're managing many clients at once, we demoed today also putting AI in the hands of their partner tools. And for us, that's Xero Partner Hub is where we're calling kind of that unified place that accountants and bookkeepers come to manage many clients at once. And the second thing we've talked about is really helping them go on that CAS journey, that journey where they become more value-added.
If you think about our financial insights product, our goal is to put it in their hands to help them transform their own industry. I think that stance from Xero is very differentiated. I'd say it's very differentiated in the U.S. compared to the focus of others on only the SMB. We continue to believe that our job is to help the accounting and bookkeeping industry also use AI. I think that approach you can see in our products and in our education with ABs.
Perfect. Thanks, guys. Cheers.
Thank you.
Thank you. Your next question comes from Sriharsh Singh from Bank of America Securities. Please go ahead.
If I have two questions from my side. One, are you seeing any increase in competition, or do you expect an increase in competition from AI-native AB software in the U.S.? And how would that potentially impact your GTM spend and churn in future and maybe for the sector as well? Second question, on JAX adoption, is there any differences across geographies that is worth pointing out? Is it fastest in the U.S. versus U.K. in Australia or vice versa? Thank you.
I'll take the first question, and I'll maybe leave it to Diya to take the second. So look, I think the way that we think about native AI startups, first of all, they're smart, and they're fast. And if somebody's doing something smart, we should learn from it. So to be clear, I think we're all pretty paranoid, particularly when it came to what Diya said, not reimagining the moats we might have in data, but the customer experience. In real time, in front of all of us, we are all users of chat products, all right? We see the customer experience being reimagined. Our job is to learn from everybody smart, including AI-native startups, and there are plenty of them in Silicon Valley and around the world that we intend to learn from. So I think our goal is always to be abreast and mapping.
You should expect that we do do active mapping of who we think is doing interesting things in the space. I don't think you should ever be so arrogant as to not learn when markets are being disrupted. That is the way we think about it. Now, our job is to compete. Our job is to amass the AI talent here that can go soup to nuts, think about how to use our advantages to recreate better customer experiences. Again, if someone is doing something incredible and we think there's a team to go by, trust me, we will think about inorganic strategies too. For sure, we want to learn from what the market is doing and build a team that is equipped to be on offense all day long. I don't think we think that we should ever sit on our laurels.
The other thing that I would add there is we also don't talk about this very much, but we have our own labs effort where we try a number of things with our customers. We try different UIs, different experiences, etc. But we don't talk about that because the ones that are successful, we build into our product. The other thing I would also say is not a lot of people know this. I was trying to start an AI-native bookkeeping company when I ran into Sukhinder. And the problem that I ran across was twofold. One is, how can I get the scale of data to train the models, right? And it's not just raw data. You can get transactions. You can get bank feed. It's the intermediate data that builds on top of each other.
And then how do I string it across all the jobs we have to be able to actually have impact at that scale? We gave you one stat with 22 hours in bank rec. Now, multiply that with if bank rec is done, what does that mean for auto doing taxes, etc., etc.? They all build on each other for the value. So I think that's the answer there on the adoption. And JAX, interestingly, we see adoption we do not see adoption differences by region as much. We see adoption differences by either the job to be done or the type of customer and whether they are more focused on saving just time, in which case they adopt automated tasks very heavily, or if they're bigger and have more complicated challenges.
If you have five employees, you do end up doing some kind of Q&A questions through JAX insight, through financial insights, etc., to understand your business more and do scenario planning more. But across geographies, I think the value prop is resonating pretty clearly and pretty similarly.
Yeah. And one last point I think you asked, which I skipped over, so I want to make sure we answer it, on distribution, what we see and the potential for churn. So I talked about native AI startups from the perspective of learning and what they might do to reimagine experiences, which, quite frankly, are getting reimagined every day, every month, every week, every six weeks, every year. And like I said, I think I'm excited about our own talent in that game. But I think when it comes to distribution, I think I and we identified that really the distribution game is being played up at the consumer chatbot level right now. So if you look at Gemini versus OpenAI, right now anyway, it looks like Anthropic is more enterprise-focused, but that might change. Copilot, what we see is a world where these are next-generation distribution.
One of the interesting facts is we are among the leading, most cited software platforms in AI engines when you ask for leading accounting software. And our teams that work on distribution are actually focused on making sure we're tuned for top-level distribution. So as much as yes, I would not say we have seen churn from a native AI startup. We have not. But I would say we are tuned to how to think about, A, learning from that, but more importantly, thinking about next-level distribution opportunities with all of the, I would say, the chatbots and hyperscalers who are going to own the consumer interface, the consumer interface at the billion-user level and above, and how we need to be integrated with them.
Thank you.
Thank you. Your next question comes from Annabel Khun from Evans & Partners. Please go ahead.
Hey, guys. Thank you for fitting in the question and for the presentation today. Just wondering if we could get some color just focusing in on Melio's business, sort of any color on how subscription is going inside the business revenue and subscriber-wise. And then maybe just an update as well on the Fiserv partnership and how the integration is going with CashFlow Central. Thank you.
Sure. So first, I think the presentation shared different details about the business. And I think overall, as we've shown in the presentation, the vast majority of small businesses in America are still not using accounts payable software. And so we could not be more excited about the opportunity and the growth ahead. And as we've mentioned in the presentation, Melio has built three unique capabilities that helped us grow faster than most with a very simple workflow, the richest money movement capability set for B2B payments, and a true platform that can be embedded anywhere. These are true unique assets that helped us grow fast and will continue to help us grow fast in the future. In terms of payments, this has been one of the biggest investments that we've done in the past with our R&D team. And we could not be more excited about the future.
It's public information that one of the biggest banks in America for small businesses, U.S. Bank, is live with Melio. The ramp-up has started. We're getting great feedback from customers. And so we're seeing the potential and the massive total addressable market that partnership with banks can unlock for the smaller business segment. And so the Fiserv partnership is getting stronger. Fiserv is signing more banks. The initiative is not only key for us. It is key for them. And so we are excited to continue ramp-up banks and get more small businesses and serve them where they already operate within their online banking experience. So that's the Fiserv partnership. And happy to elaborate more if needed.
Then I think it's fair to say on subscription, Matan, it's progressing, but you are always finding the balance between what customers want to maximize TPV per month and subscription. Is that fair? And subscription, you see more for customers that are bigger SMBs.
Yes. So I think the beauty of the Xero Melio combination and also the Melio product is that it combines workflows and money movement capabilities, which we monetize both, and we provide a lot of value on both. And so for customers that are interested to save time with our simple workflows, we have the subscription business model. For customers that want to improve their cash flow, we have different money movement capabilities that help them keep cash longer or get paid faster. And so we are leading with these capabilities across the U.S. market. And so we have customers that appreciate both because small businesses also are very busy, and they appreciate automation and simple workflows. They cannot understand the more complex, robust workflows that are offered by enterprise-level solutions.
They need a simple consumer-level simplicity type of flow, which is one of the core pillars for Melio's success and why customers choose Melio. So the simplicity of our workflows that save them significant time can be monetized through subscription and increases retention for our customers and the money movement capabilities that maximize cash flow. The combination of the two is powerful. It's true for Melio as an accounting agnostic solution. It's true for Xero, combining the accounting workflows and the money movement capabilities. This has been proven by our competition in the U.S. We are very excited to unlock this massive opportunity now that we're one company.
Thank you. Then maybe just a quick follow-up there. Just to sort of help us understand the base that Melio is growing off, what sort of proportion would you say of customers that are more skewed to that higher-end business are more with you for the workflow versus sort of maybe a proportion that are more valuing you guys for the cash flow options?
So I will say just the bottom line is that they need both. It's very hard to decouple the two. And so when customers come into the experience, they need to pay different vendors in different ways, whether it's ACH, paper, checks, paying with the card, sending an international payment. But they also need to add a bill into the system. So our bill capture capabilities, as we've seen in the presentation, simple approval workflows, even a dentist clinic needs some approval workflow between the office admin and the dentist, 1099 W-9 reports, syncing with your accounting software and your preferred ledger. All these workflows are critical for us to win customers and retain customers. So we cannot really separate the two use cases. Customers need both, and they expect both. That's why so many businesses choose our software over different alternatives.
They get both the workflow and the money movement capabilities. So they can send an international payment and also sync this payment into their accounting software and save manual entry because the bill is automatically entered into the system. So the power of our platform is coupling the two. Now, in terms of business model, we have different business models for different elements. And so for workflow, subscription is a pure business model. But I would say any money movement that happens on our product is due to our money movement infrastructure and the different software workflows that we've developed. That is the unique combination that helps us win many other alternatives.
And I think it's fair to say, which we are very supportive of, that in terms of business model, which Matan identified, there continues to be a freemium SKU on Melio. And why? Because you provide the workflows, but you can monetize that customer even more on the cash flow. And then there is another SKU that prices both subscription and payments and payments. And of course, Melio, in totality, still continues to drive the majority of its revenue off payments volume. And that is its primary driver of economic value. And its secondary is subscription, right, which is the inverse of Xero, which is primarily subscription and secondarily payments. And just to be clear, we like that positioning because it maximizes the TAM opportunity. We're also not trying to get as we're trying to maximize the U.S. opportunity.
We want customers to go if they already have software on accounting and they want to go use Melio, we want that. If they want to come in freemium, we want that. That is a TAM expander for us in this highly competitive market.
Yeah. Maybe I'll add one last comment in terms of our partnerships, like Capital One, for example, or U.S. Bank. Money movement capabilities is so robust that even financial institutions are choosing to partner with Melio to get the full payment infrastructure that we've built. In addition, banks are not or do not excel with workflows. They don't have bill capture, approval workflows, tax reporting, accounting software sync. So the value that Melio provides partners is also twofold on the money movement infrastructure piece. Even the leading financial institutions don't offer all the breadth of capabilities that Melio has today.
Combined with the different workflow capabilities that we embed into partners, again, whether it's bill capture, approval workflows, tax reporting, contractor payment compliance, or just syncing with the preferred ledger that the customer chooses to, these two elements together are what helped us win partners and customers alike.
Thanks for the color. Thanks for the presentation as well, guys. Thank you.
Sure.
Thank you. Your next question comes from Rohan Sundram from MST Financial. Please go ahead.
Hi, Jane. Thanks for taking my question. Just the one from me, and I'll be quick on it too. Just a question for Claire on balance sheet. Can we please revisit some of your comments previous on capital management and how you're thinking about the outlook for deleveraging given the strong growth profile, given the operating leverage? Maybe if you can just talk through that. And maybe you remind us how you're also thinking about the outlook for potential further M&A. Maybe it's too soon, but is there an outlook for bolt-on M&A along the way as well? Thanks.
Yeah. No, I mean, I think to your point, very happy with the progress we're making from a leverage standpoint in a very strong balance sheet position, which sets us up well going forward to deliver against the Capital Allocation strategy that was laid out previously at our investor day. So very much focused on, obviously, organic reinvestment back into the business. We're really excited about, obviously, everything that we've shared today. A lot of that AI, obviously, is coming from the investment that we've been making in R&D and allocating capital to that. And we plan to continue to do that. And we're able to source that internally with some of the efficiencies that we've seen. Other areas, obviously, M&A does still continue to be a part of our capital allocation strategy.
Super excited, as you've heard today, about the opportunity of Melio and Xero together and the opportunity ahead. But we still anticipate to continue to look at where it makes sense, where we see the right level of return in a disciplined way to look for M&A opportunities. And again, reiterating what we've said before, very much focused on the 3x 3 as our primary focus area, but where we see that future return, where M&A would potentially still be an opportunity for us as we continue to look at our medium to longer-term profile. And so yeah, so I think the build partner buy approach that we've talked about previously, I think we're in an excellent position where we are today to continue to do that. We'll absolutely be reinvesting back into the core, into organic growth, organic opportunities.
We'll continue to look at the right return for inorganic opportunities, but we'll also partner where that makes sense as well. Yeah, very strong foundations as we look forward to the aspirations that we've laid out for fiscal 2028 and beyond.
Thank you, Claire.
Thank you.
Thank you. Unfortunately, that concludes our time for questions today. I'll now hand back over to Sukhinder for any closing remarks.
Sure. Well, thank you for joining us today. As you can tell, we're excited about the business. I want to come back to the 3 points we made at the beginning of the presentation. We continue to do what we said we would do on the core business, which is really, I think, drive profitability and high growth at the same time and keep deepening our relationship with customers. This is the journey we set out on: value plus volume, profitability plus high growth. Almost 3 years ago now. We're 2 years into our 3-year strategy period. Number 2, in that time, we've also continued to gain conviction on playing in the largest SMB market in the world. And we are playing offense there.
We think it is important for Xero's long-term opportunity to realize the value of the U.S. opportunity and really give customers more value through accounting and payments. And then lastly, what has really accelerated over the last two years, as you all know and so do we, is really the AI opportunity. And we have been leaning forward since the beginning of our journey with JAX. We stay leaning forward. We're really excited about the advantage that we have to bear. And we're here to compete and to really give our customers more value and take them on the journey of AI. That is what we're here to do, take them on that journey. Thanks so much.