Consumer payment methods have undergone a significant transition to online platforms in the past year, coinciding with a surge in internet purchasing as individuals sought to limit face-to-face interactions during a global health crisis. Now, a company specializing in a comparable payments infrastructure – but geared specifically toward small businesses and their payment requirements – has secured substantial funding to expand its market presence.

Melio, a platform enabling SMBs to electronically remit payments to other entities via bank transfers, debit cards, or credit cards – and offering the option of traditional paper checks upon request – has finalized a $110 million funding round, achieving a company valuation of $1.3 billion.

The company’s primary objective has been to develop and implement a system to replace traditional paper invoices, postal mail, and bank transfers, which can take several days to process and continue to be prevalent in small and medium-sized enterprise payments. Though founded in Israel, the company has largely concentrated its efforts on the U.S. market, experiencing a 2,000% growth rate last year (the specific customer base size remains undisclosed). CEO Matan Bar indicated that the U.S. market will remain the company’s central focus for the foreseeable future.

This latest investment round was spearheaded by Coatue, with participation from existing investors including Accel, Aleph, Bessemer Venture Partners, Corner Ventures, General Catalyst, and Latitude. This successful funding follows a $130 million raise in 2020, bringing the total funding to $256 million, with additional support from companies such as American Express and Salesforce.

American Express serves as a payment option for customers utilizing Melio’s payment network.

Salesforce is not currently an integrated partner, but Bar – who co-founded the company with Ilan Atias and Ziv Paz (serving as CTO and COO, respectively) – described their interest as analogous to that of Intuit’s QuickBooks. QuickBooks integrates with Melio, allowing users to seamlessly transfer data between the two platforms, and Bar suggested that Salesforce, a provider of various business and productivity solutions, is exploring a similar collaborative arrangement.

Bar’s experience includes leadership roles in peer-to-peer payments for the consumer market, previously managing PayPal’s peer-to-peer payments division, encompassing Venmo in the U.S. and comparable services internationally. He joined PayPal through eBay’s acquisition of his prior venture, a social gifting platform known as The Gifts Project.

According to Bar, his time at PayPal provided firsthand insight into “what the digitization of payments looked like as they were shifting from cash to mobile payments. Consumers were buying online instead of at brick-and-mortar stores, and even when they were getting physical items, they were paying online.” He soon observed, however, that this trend was not mirrored among businesses.

“Trillions of dollars are still being transferred via paper checks in the B2B space,” he stated, emphasizing the dominance of paper invoices and checks. “The space is way behind other payment areas. I would be talking with SMB owners who would be using fancy Square or PayPal point of sale devices, but when they had to pay, say, a coffee bean supplier, they stuffed checks in envelopes. That’s very intriguing obviously, and it triggered our interest.”

While the issue has been recognized previously, many existing solutions, such as Bill.com or Tipalti, are primarily designed for larger organizations. “They are too overwhelming for SMBs,” he explained. “Even their names say it all: Accounts Payable Automation Solutions. It’s about tens of thousands of payments, and accounting departments, not an order from a wine shop.”

This realization led to the development of a streamlined payments platform tailored to the specific needs of small businesses.

A key focus is on optimizing cashflow, Bar explained. The Melio platform allows for automated payments while enabling businesses to control the timing of funds disbursement: “Buyers keep cash longer, vendors get paid faster,” as Bar described it.

This functionality is supported by Melio’s proprietary technology, which incorporates risk assessment, fraud prevention, and payment balancing across the platform to facilitate transactions without requiring the company to secure additional debt.

“We leverage data to assess risk,” Bar said. “Every dollar in this round is going towards R&D and sales and marketing. We don’t need the capital in our model.” The platform also integrates with American Express and its credit system, although most transactions currently utilize bank transfers.

Unlike Stripe’s B2B payment services, which require integration into its broader ecosystem, Melio operates as a standalone service, allowing businesses to utilize it regardless of their existing payments provider.

Melio’s platform offers a low barrier to entry, providing completely free service for businesses making payments via bank transfers or debit cards. A 2.9% fee applies to transactions processed with credit cards, which Melio notes is tax deductible in the U.S.

Bar highlighted the relative lack of modernization in the U.S. market as a key factor in Melio’s initial focus. “The average bank transfer still takes three to four business days, if you don’t want to take any risk,” he said. “We have developed models to do it same day. We take the risk that the buyer might not have the funds in that account but think about how that impacts cash flows. With Melio you still pay in three days, but money will be delivered the same day. That is how you can keep cash longer, without a payments risk.”

Addressing an underserved market during a period of increased virtual activity in payments is a primary driver of investor interest.

“Melio has identified both the opportunity and duty to help small businesses manage their finance remotely and improve cash flow, in normal times as well as during this crisis, as physical payments supply chains are interrupted and overwhelmed,” stated Michael Gilroy, a general partner at Coatue. “Going digital is the only way small businesses can compete against larger rivals and stay ahead of the curve.”

Regarding future product development, Bar mentioned that the company has received “a lot of incoming interest from partners to enable B2B payments within their products on their product,” mirroring the QuickBooks integration and potentially extending to Salesforce. “Payments are contextual and they want to enable a quicker way to get there. The SMB is underserved. And yes, from a unit economics it’s much better to go after Nike. But this is also to really create some financial inclusion. We want to enable services for the small shop that the big guys already have.”