Xero Unveils AI Agent Roadmap, Eyes $29B U.S. Payments TAM After Melio Deal
by Tristan Rich · The Markets DailyXero (ASX:XRO) used an investor briefing to outline its artificial intelligence strategy and provide additional detail on the company’s U.S. payments opportunity following its acquisition of Melio. Executives emphasized what they described as a foundation of “continued, consistent, high-quality growth and profitability,” and said that discipline has created capacity for new investments in AI and payments.
AI as a TAM expander and shift from record to action
Chief Executive Officer Sukhinder Singh Cassidy framed AI as a large market-expanding technology shift, citing a Gartner forecast of a “4x TAM expansion for SaaS companies.” She said customers’ expectations for AI fall into four categories: getting faster help, getting time back through automation, becoming “smarter now” through insights, and unlocking growth.
Singh Cassidy said Xero’s role as a system of record—holding and processing customer financial data—positions it to combine proprietary data with horizontal large language models (LLMs) to deliver more accurate, context-aware intelligence. She characterized the company’s ambition as a “triple threat”: evolving from system of record to system of action and system of decision-making.
She also highlighted Xero’s domain breadth across financial operations (including payroll, accounting, payments, bill pay, invoicing, tax preparation, analytics, and expenses) and its go-to-market reach, noting more than 250,000 accountants and 4.5 million subscribers.
Xero’s four-pillar AI strategy and early adoption metrics
Chief Product Officer Diya Jolly described Xero’s AI vision as four pillars:
- AI agents to automate actions and workflows across accounting, payments, and payroll to return time to customers.
- Actionable insights agents alongside automation, which Jolly said differentiates Xero from peers focused “only” on automation agents.
- Reimagined AI-first SaaS experiences designed for managing “an army of agents,” with connected workflows and intelligent surfaces.
- Trust and auditability through what Xero calls “decision data” and “context graphs,” aimed at enabling consistent, auditable outputs that general-purpose LLMs struggle to deliver in finance.
Jolly said Xero has expanded its AI and machine learning talent over the past three years and built self-service tools for engineering teams to experiment with AI features. She shared several usage indicators, including an average of 22 hours per month saved by small businesses using automated actions, and more than 97% of help sessions resolved without a support ticket through AI-enabled chat and self-service tools in Xero Central. She also said messages per user to the JAX chatbot increased 61% per user in the last three months and that 12% of Xero Analytics users have adopted AI Insights features shortly after launch.
On adoption, Jolly said about 2 million subscribers benefit from AI features across new and existing capabilities (including bank reconciliation suggestions and Hubdoc extraction). She added that FY26 generative AI launches—such as JAX auto bank reconciliation and financial insights—had been adopted by more than 300,000 subscribers within the first three to four months.
Product demos: JAX, agentic bank reconciliation, and Partner Hub
Product leader Lisa showcased JAX as a “financial super agent” orchestrating multiple AI agents. She described a redesigned homepage that serves as a control room for agents and insights, replacing a prior to-do list. Lisa said Xero expanded JAX beyond its initial invoice creation agent to include agents for help questions and finance topic research via a partnership with OpenAI.
A key demo centered on a “100% agentic” bank reconciliation agent. Lisa contrasted a business with 118 items to reconcile manually versus another with only three remaining after the agent auto-reconciled 113 line items. She said the agent provides a log of actions and reasoning, and described four mechanisms driving automation: user rules, predicted matching documents, learning from the user’s history, and predictions based on patterns from 4.5 million platform users. Lisa said accuracy is “over 97%.”
Lisa also demoed Xero Analytics AI Insights and a financial insights agent that can answer questions, break down revenue, analyze expenses, and run scenarios such as whether a business can afford a $20,000 van purchase. She said the insights agent is seeing “over 90% accuracy.” For accountants, she highlighted Xero Partner Hub, with an agent designed to query across client bases and generate client summaries for meetings.
Monetization approach: bundles, add-ons, and experimentation with usage
Jolly outlined a monetization framework intended to preserve simplicity and adoption while aligning pricing to value. She said Xero plans to bundle AI features across plans, offer add-ons for access without upgrading plans, and “experiment with consumption-based pricing.” Executives said the company aims to monetize incremental value beginning in FY27, while continuing to embed AI broadly and launch “over a dozen new AI agents” across accounting, payments, and payroll over the coming year.
In Q&A, CFO Claire Bramley said Xero does not expect material changes in the medium term to the subscription gross margin profile from AI-related costs such as tokens, noting the company will monitor costs and factor them into pricing and monetization decisions.
Melio: U.S. payments TAM, product embedding, and path to FY28 goals
Singh Cassidy reiterated the strategic rationale for acquiring Melio, emphasizing demand for “accounting plus payments” in the U.S., digitization tailwinds in a market she said lags other countries, and the platform and team behind Melio. She said the combination supports Xero’s “3×3” strategy and aims to improve unit economics through higher gross profit dollars per customer.
Melio CEO Matan Bar described the U.S. SMB payments market as a $29 billion TAM, with accounts payable representing $14 billion today and projected to grow to $19 billion by 2030. He said 90% of U.S. small businesses still do not use software for accounts payable. Bar outlined frictions including continued reliance on checks and cash (20% of AP volume), long settlement times for checks and ACH, limited remittance data, and fragmented vendor payment preferences.
Melio demos highlighted multiple bill ingestion methods (including Gmail scanning, a dedicated inbox address, accounting system sync, mobile photo capture, and desktop upload), AI-powered data extraction and categorization, and funding and delivery flexibility. Ilan said businesses can fund payments by bank transfer or credit card (with a 2.9% fee), and use a BNPL option to split into up to 12 installments. He also said Melio supports international payments to more than 80 countries. Eli demonstrated Xero’s embedded bill pay experience powered by Melio, including KYB onboarding, connecting a bank account via Plaid, and paying bills within Xero’s bills workflow. Eli said customers using Melio for bill payments are saving an average of five hours per month, and noted that credit card funding in Xero’s embedded experience is “coming soon.”
Executives outlined economic drivers for the U.S. payments business—total payment volume (TPV) and take rate—and said Melio has influenced both through product design and education. A slide discussion cited an illustrative cohort in which TPV increases around 75% in the first 12 months after adoption, with continued double-digit growth beyond year one.
Singh Cassidy and Bramley also discussed new U.S. disclosures planned to track progress, including bill payment revenue split between syndication and direct customer revenue, total TPV, gross TPV take rate for direct customers, and U.S. gross margin and gross profit.
On FY28 objectives, management reiterated an aspiration previously announced with the acquisition: “more than double Xero’s fiscal 2025 group revenue by fiscal 2028,” supporting a “greater than the rule of 40 outcome” in FY28. They also reiterated an expectation for Melio to reach EBITDA break-even on a run-rate basis by the end of the second half of fiscal 2028.
About Xero (ASX:XRO)
Xero Limited, together with its subsidiaries, a software as a service company, provides online business solutions for small businesses and their advisors in Australia, New Zealand, and internationally. It offers Xero, an open platform that connects small businesses to a range of solutions, which helps to manage their finances. The company also provides Xero mobile app; and accountant/bookkeeper tools, including Xero HQ, Xero Practice Manager, Xero Workpapers, and Xero Cashbook or Xero Ledger. Xero Limited was incorporated in 2006 and is headquartered in Wellington, New Zealand.