Not long ago, the standard announcement from a fast-growingtechnology company tended to involve a funding round, animpressive valuation and a photograph of the founders looking as thoughraising $100 million was roughly what they had expected to happen that Tuesday.The amount raised often did most of the work. A large cheque from a respectedinvestor carried its own implication that things inside the company must begoing rather well. The language is changing.Starling has been talking publicly about the annualrecurring revenue generated by Engine, its banking technology business. Cartahas published its ARR milestones. Similar figures increasingly appear ininvestor updates, founder interviews and company announcements across financialtechnology, and we have been discussing whether to publish a run rate numberourselves.Why ARR has become attractiveI understand the attraction because the market has becomemuch more interested in what happens after the money arrives. Between about2020 and 2022, fintech became remarkably good at producing spectacularprivate valuations.Capital was cheap, investors were chasing growth, and afunding round could create the impression of commercial momentum before thecompany had generated very much revenue at all. Some excellent businesses werefinanced that way; some less excellent ones benefited, too. Venture capital,like most forms of human enthusiasm, occasionally gets carried away.The correction that followed changed the questions.Investors looking at growth stage fintechs now spend much more time on margins,customer concentration, cash generation and the durability of revenue.Companies still raise money, and valuations still matter, but a fundingannouncement has lost some of its former ability to serve as a generalcertificate of corporate health.Hence ARR.A revenue figure appears reassuringly tangible. Customershave bought something, money is moving through the business, and an outsider hasat least one number against which to judge all the talk of growth. For privatecompanies whose statutory accounts inevitably describe a business severalmonths behind where it is today, a sensible run rate figure can be genuinelyinformative. The difficulty begins with the word “sensible”.One Acronym, Different BusinessesARR originally had a fairly obvious home in subscriptionsoftware, where a company might have thousands of customers paying contractedannual fees. Fintech has borrowed the acronym for businesses whose economicscan look completely different.A banking software platform with three-year customercontracts has one kind of recurring revenue. A payments company earning a smallamount whenever somebody uses its infrastructure has another. A tradingbusiness may generate extremely repeatable customer activity while remainingsensitive to volatility and market conditions. Lending brings credit cycles andbalance sheet considerations into the equation. Two founders can thereforeannounce identical ARR figures while describing businesses with very differentlevels of predictability.AI has recently made the terminology even more entertaining.The extraordinary speed at which some AI companies have reported revenue growthhas encouraged closer examination of what exactly sits inside those numbers.Investors have debated the treatment of contracted revenue, customers that havesigned but have yet to go live, unusually strong recent months and annualisedfigures based on very short trading periods.None of those calculations is inherently absurd. They simplyanswer different questions. If a company earns £1 million in January and callsitself a £12 million annualised run rate business, the arithmetic is beyondreproach. Whether January will repeat itself another eleven times is the moreinteresting question.What the Number Needs to Tell UsFor fintech, that distinction matters enormously becausetransaction volumes can move, customers can ramp at different speeds, and marketactivity can make one quarter look rather more handsome than the next. Aheadline figure becomes useful only when readers can understand the machineryproducing it.That is the standard I would apply if we publish oneourselves. I would want people to know the period being annualised, how muchrevenue is live today, how much has been contractually committed, whether ahandful of customers account for a large share of it and how the economicschange as volumes grow. A smaller figure with a clear explanation tells meconsiderably more about a business than a giant number that developscomplications the moment somebody opens Excel.Fintech Grows upThe interest in ARR also says something about where fintechnow sits in the wider technology market. AI has taken over much of the rolefintech occupied during the last investment cycle. It attracts astonishingamounts of capital, produces founders who become famous remarkably quickly andgenerates revenue milestones at a speed that has caused an entire ventureindustry to reach repeatedly for its calculator.Fintech, meanwhile, is growing up. That sounds lessglamorous than being the next technological revolution, although there areworse commercial positions to occupy.Many fintech businesses now haveregulated operations, institutional customers, established payment flows,banking relationships and years of operating data. The sector can increasinglymake its case through what customers actually use and pay for.ARR fits that stage of development rather well. It alsocomes with a danger familiar to anyone who lived through the valuation boom.Once a number becomes associated with success, companies inevitably becomeinventive about making the number larger.The Risk of Another Vanity MetricA decade ago, valuation sometimes told us more about theavailability of capital than the quality of the company receiving it. ARR couldacquire the same weakness if every form of projected, committed, annualised, andrepeatable revenue ends up placed beneath one convenient acronym.That would be a shame because the underlying change ishealthy. Fintech should be able to show that businesses are generatingsubstantial revenue, that customers stay with them, and that years of investmenthave produced companies with genuine commercial weight. Publishing thosefigures gives the market more information and gives management teams somethingmore demanding to talk about than the valuation attached to their last fundinground.But if ARR is going to become fintech’s new favouritenumber, the industry should spend a little less time admiring the acronym and alittle more time explaining the arithmetic.This article was written by Oscar Asly at www.financemagnates.com.