Three months after Xero’s Chief Executive Officer first said you couldn’t replicate her platform with cheap AI tools (and after I tried it anyway) Sukhinder Singh Cassidy is back with a sharper test on the new Switzer Talking Business podcast.
Naturally, as the Chief Executive Officer of Xero, she’s got a direct interest in defending the company against the AI panic that has helped to knock the company’s share price from near $200 to around $76. But her case is still the most articulate explanation I’ve heard from any ASX CEO of what large language models can and can’t replace in business software.
The Claude test, v2
This time around, Singh Cassidy didn’t just say AI couldn’t easily replicate Xero. She told Peter Switzer blow-by-blow exactly what happened when she tried.
“I asked Claude to rebuild Xero. So Claude was able to upload my bank statement and was able to give me a profit and loss. But of course, it couldn’t reconcile my transactions. And then I said, no, no, build a Xero competitor. And then it said, well, first you have to go get a bank. Then you will have to get several thousand banks. Then you will have to be able to make an invoice payment.”
The Xero CEO says all Claude did was produce a checklist of the actual financial-services infrastructure Xero spent two decades building, in the order it would need to be built before it could even start writing the software.
“Claude directed me to build the infrastructure of Xero in order to build a piece of software on Claude. So the point was not a line of code. The point wasn’t just a shell of a website that says, ‘hey, I can interpret your profit and loss’.
“The point is, and this is the point about Xero, we are a system of record.”
“We start with trusted infrastructure. We connect to your banks. We connect to the ATO, we connect to payment rails so you can make payments, receive money, send money on Xero.”
This is the part where I think we have to agree with her. When I ran my own experiment in February, I asked Claude Code to clone the user-facing features. It did, eventually, after a fashion. What I didn’t ask it to do was clone the regulated banking relationships, the ATO integrations, the payment rails connections, the trust layer that has been built up over twenty years of compliance work. Those things aren’t lines of code. They’re contracts, licences, audited integrations and reputational capital. Free AI can’t conjure those. Paid AI can’t either.
The AI tools she actually uses
Singh Cassidy’s broader frame is that the market is treating AI as a single thing rather than asking the harder question of who benefits and who gets hurt.
“The market right now is reacting very much to AI indiscriminately. The market is having a hard time distinguishing between which companies are going to be net winners in AI, and which companies that produce software like Xero are going to be hurt by AI. We’re very clearly in the camp that we are AI forward. And more importantly, our customers need us to be AI.”
The argument here is that there is a real difference between software companies that AI will help and software companies that AI will hurt, and that the market is currently failing to make that distinction at the share-price level. Sukhinder thinks Xero is in the first camp. Her evidence is the company’s own use of Claude for engineering productivity, and the recent commercial partnership between Xero and Anthropic that didn’t exist when she first ran her clone test.
“AI is there to make things happen. It can’t make everything happen. The job for us at Xero is to take all of the infrastructure we built and take advantage of these magical technologies in ways that are still accurate, auditable, traceable, and use it in combination with all of our infrastructure in our own software.”
The specific example she gave of using AI day-to-day is a small one but illustrative. She’s built her own agent on Claude that helps her team write in her voice.
“I have a skill that I’ve built on Claude called Sukhinder Voice, and I give it to my team when they have to write something that they’re trying to use my voice. It gets much closer because I trained an agent. Instead of trying to guess at it, this agent will help you write in my voice.”
What else we learned
AI as a search layer for Xero
The Xero CEO added that AI is more than just a bolt-on feature. It can become a search layer tool.
“One of the reasons we integrate and work with the large language models is also they are a new source of discovery. People are increasingly going to ChatGPT, Gemini and Claude to research accounting software. Why would Xero want to integrate? Because we have a massive focus on acquiring subscribers.”
How the Melio acquisition is going
The market sold Xero off when it announced the acquisition of US bill-pay software Melio earlier this year. Singh Cassidy’s case on the podcast is that the deal is performing.
“The business when we bought it was growing more than 50 per cent year on year. It continues to do so, by the way, on a run rate close to US$200 million. We bought it to give us a significant step up in the US market, where we are a challenger brand. To give us both sides of the payment job. The combined business, on a pro forma basis, did $570 million in revenue last year. Melio allowed us to grasp another important small business job, attached to the jobs we already do, to be more competitive in the United States. That has propelled us to close to 30 per cent growth in the United States.”
The acquisition is dilutive to net profit in the short term. Xero has guided the market that Melio will reach breakeven on an exit run rate basis by fiscal 28. Until then, the operating leverage shows up in revenue rather than reported profit.
How Xero is taking on the US
The US market is the larger long-term prize for Xero, says Sukhinder. It’s also where the company faces its most formidable competitor in Intuit, the maker of QuickBooks.
“Intuit is 40 years old and their home market is the United States. Xero is 20 years old, and our home market is Australia and New Zealand. We entered the US market as the challenger brand. When people choose us, they choose us because we are easier to use. Much more of an open platform. You can mix and match the kinds of applications you want to put on it. And number three, value. We are much cheaper than Intuit.”
Xero has roughly 2 million subscribers in Australia. It has around half a million in the US.
“We grew the combined business with Melio, you know, north of 40 per cent, closer to 50 per cent this past year. Even the organic business of Xero alone is now growing north of 30 per cent, even before the addition of Melio. So although we’re smaller, we are mighty.”
The full interview is available now on the all-new Switzer Talking Business podcast.
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