Hi friends,

One of my favorite things about this work is that it takes me places where I can see economic reality up close, not just from a headline. And what I keep seeing, from Latvia to New Orleans, is that the small business experience is still defined by cash flow stress, fragmented tools, and a serious lack of financial clarity.

This week I am sharing a piece on the company I think is making the most interesting bet on solving exactly that.

There are two economies operating right now, and the divergence is becoming harder to ignore. Large companies are accelerating again, fueled by capital, scale, and AI. Small businesses, meanwhile, are still navigating cash constraints, delayed payments, and fragmented financial tools.

Public markets have largely recovered. AI infrastructure companies are commanding premium valuations once more. Venture investors are cautiously re-entering the market after two years of retrenchment. But on the ground, many small businesses are still operating in a fundamentally constrained environment defined by cash flow uncertainty, delayed payments, margin pressure, and increasingly fragmented financial tooling.

That disconnect sits at the center of how Xero is positioning itself for the next era of small-business finance. Already a dominant accounting platform across Australia, New Zealand, and the UK, Xero is now planting a deeper flag in the U.S. market at a time when America’s 33 million small businesses are increasingly demanding simpler, cloud-native financial infrastructure. Xero is a highly accessible, cloud-based accounting software geared for small and medium businesses that want something simpler and more flexible than traditional accounting software.

The company increasingly sees the future as the AI-native financial operating system for modern small and medium-sized business (SMB) growth: one that combines accounting, payments, payroll, tax, analytics and more with an open ecosystem, into AI-powered automated workflows across a unified infrastructure layer designed specifically for small businesses.

And most importantly, Xero believes the opportunity is global.

One of the more interesting advantages Xero brings into the current market cycle is perspective.

Unlike many fintech companies built exclusively around the US market, Xero has nearly 5 million customers across multiple geographies: Australia, NZ, the UK, Canada, and the US, while simultaneously offering crucial visibility into how small businesses navigate cash flow stress, payment cycles, and operational complexity across very different economic environments.

Its Xero Small Business Insights (XSBI) program has consistently identified the same underlying reality across markets. While macro headlines may suggest stabilization, many SMBs are still operating with extremely limited financial margin for error.

Late payments remain persistent. Cash flow visibility remains weak. And for many business owners, financial management still happens across disconnected systems rather than through a unified operating layer.

That broader economic backdrop is central to understanding Xero’s strategy.

When Xero acquired Melio last year, the move was about more than payments.
The acquisition strengthened Xero’s ability to connect invoicing, payments, and cash flow management inside a single ecosystem, particularly for the US market, where SMB financial workflows remain highly fragmented and the SMB payments TAM represents a $29B opportunity.

Through Melio, Xero now delivers a full-service financial platform for small businesses. Melio serves as a one-stop shop for small and medium businesses to pay vendors, contractors, and suppliers online in their desired payment method (ACH, debit card, or credit card), while delivering funds to their vendors as a direct deposit or even by mailing a physical paper check.

The larger thesis is becoming increasingly clear: small businesses do not need more standalone financial tools. They need an integrated infrastructure that can centralize workflows, automate operational tasks, and provide real-time financial visibility.
That positioning matters in an environment where many SMB owners are already juggling dozens of disconnected software products.

The current AI cycle has created a wave of experimentation across software. But accounting and finance operate under a very different trust standard than most AI categories.

A hallucinated marketing paragraph is inconvenient. A hallucinated financial recommendation can materially distort how a business owner manages payroll, taxes, hiring, or debt obligations.

That distinction is central to Xero’s approach to AI – what it calls Accountable Intelligence.

Rather than layering generic copilots onto existing workflows, the company has built JAX, its agentic platform, around the idea that financial intelligence requires domain-specific accuracy, structured accounting data, and operational context. Moreover, JAX helps demystify financial data for small and medium-sized business owners by providing instant, easy-to-understand answers about the business's financials.

This is where Xero’s long operating history becomes strategically important. The company has spent two decades building infrastructure for millions of small businesses globally, creating a deep data layer around how SMBs actually operate across industries and geographies. This enables JAX to orchestrate insights and actions with a level of financial precision and domain expertise that general-purpose AI simply can’t match.

The company is also taking a deliberately infrastructure-oriented approach to AI architecture, using a multi-model framework rather than relying entirely on a single foundational model.

Earlier this month, Xero announced XeroForce, a natural language custom AI agent builder for SMB workflows. Using simple prompts, small businesses can turn time-consuming repeatable and manual financial tasks into automated workflows across Xero and third-party apps. They don’t need to be a developer or have coding expertise to design custom agents that can meet the specific needs of their business, with Xero as the orchestration hub.

Like JAX, XeroForce is unique to the needs of the Xero customer with logic specific to small business financial workflows baked in. Deep customer context, financial domain expertise, and decisioned data enable XeroForce to deliver the auditability critical not only for visibility into actions, but also for compliance. Every workflow shows what ran, when, what data it touched, and what's waiting on a sign-off, with the business owners as the ultimate decision-maker on what runs on its own.

The company also recently announced a global partnership with Anthropic and live integration with its Claude ecosystem. It’s a key piece of Xero’s evolution into a trusted system of action, where customers can leverage Xero wherever they choose to work and gain smarter in-context insights by bringing their financial data into Claude. Now, high stakes financial questions become a simple, real-time dialogue. By uncovering trends or spotting anomalies within their financial data during a Claude conversation, Xero empowers users to take decisive action when they click back into Xero, whether the data prompts them to send an invoice reminder to a key customer, complete their bank reconciliation or adjust a budget.

For AI infrastructure observers, the longer-term implication may be even more important: Xero is positioning financial data as an active operational layer inside AI systems rather than as a static back-office record, and delivering on this vision at a rapid pace.

The challenge with claiming AI differentiation in 2026 is that baseline capabilities are converging quickly.

Natural language querying, automated categorization, and AI-generated summaries are increasingly becoming table stakes across software categories. The more durable competitive advantages may instead come from trust, workflow integration, and proprietary operational data.

That is where Xero’s position becomes more interesting.

The company already sits at the center of financial workflows for millions of SMBs globally. It already has accountant relationships. But it’s about more than just capturing the data from these relationships. It’s Xero’s unique ability to organize how that data is connected and understood based on the deep financial domain and compliance expertise it’s amassed over two decades, creating a rich context layer that can deliver tailored use cases for small business financial workflows across industries and geographies.

And unlike many AI-first entrants, Xero is not trying to convince small businesses to trust a brand-new system with sensitive financial operations. It is attempting to evolve an existing trusted infrastructure layer into an AI-native one.

The broader ambition, ultimately, is the democratization of the CFO office: bringing forecasting, operational insight, and financial decision-making tools historically reserved for large enterprises into the hands of small businesses that previously could not access them.

In a market increasingly crowded with AI tools, that may ultimately matter more than who ships the flashiest demo first.

Because for small businesses operating in today’s two-speed economy, financial clarity is not a luxury.

It is essential infrastructure.

You know the drill - drop me a line if you want to say hi, or think there is anyone worth meeting.

Amsterdam | 28 May - 3 June | Say hi if you’re around for Unfold or Money 20/20

New York City | 4 - 5 June | Hosting a small, curated dinner for fintech founders with General Magic. Looking for one more sponsor - if interested, reply to this email.

🎧After recording in New Orleans, I am leaning further into the next chapter of Money Memories: more in-person conversations, more audience-submitted money memories, and more honest stories about the experiences that shape our financial lives long before spreadsheets and salaries enter the picture.

That momentum is carrying into new territory. I have been recording in-person excerpts from my recent travels through Latvia and Amsterdam, and I cannot wait to bring those stories to you soon. In the meantime, expect ongoing coverage from the founders I sat down with in New Orleans earlier this year.

Excited to share the incredible guests and stories ahead.

👉 Subscribe on NPR, Apple, Spotify, or wherever you listen to podcasts.

📌Wealthy Retirees Are Buying ‘Med-à-Terres’ to Be Near Their New York Doctors

📌 Paul McCartney Doesn’t Need to Make Music Anymore. He Just Loves To.

If you find this valuable, here are a few ways to support Bear and the Bull (most of which are free):

Till next week,
Ilona

This feature is sponsored by Xero, the global financial operating system for small businesses and their advisors.