Not long ago, the standard announcement from a fast-growing technology company tended to involve a funding round, an impressive valuation and a photograph of the founders looking as though raising $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 respected investor carried its own implication that things inside the company must be going rather well. The language is changing.

Starling has been talking publicly about the annual recurring revenue generated by Engine, its banking technology business. Carta has published its ARR milestones. Similar figures increasingly appear in investor updates, founder interviews and company announcements across financial technology, and we have been discussing whether to publish a run rate number ourselves.

Why ARR has become attractive

I understand the attraction because the market has become much more interested in what happens after the money arrives. Between about 2020 and 2022, fintech became remarkably good at producing spectacular private valuations.

Capital was cheap, investors were chasing growth, and a funding round could create the impression of commercial momentum before the company had generated very much revenue at all. Some excellent businesses were financed 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 funding announcement has lost some of its former ability to serve as a general certificate of corporate health.

Hence ARR.

A revenue figure appears reassuringly tangible. Customers have bought something, money is moving through the business, and an outsider has at least one number against which to judge all the talk of growth. For private companies whose statutory accounts inevitably describe a business several months behind where it is today, a sensible run rate figure can be genuinely informative. The difficulty begins with the word “sensible”.

One Acronym, Different Businesses

ARR originally had a fairly obvious home in subscription software, where a company might have thousands of customers paying contracted annual fees. Fintech has borrowed the acronym for businesses whose economics can look completely different.

A banking software platform with three-year customer contracts has one kind of recurring revenue. A payments Payments One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl Read this Term company earning a small amount whenever somebody uses its infrastructure has another. A trading business may generate extremely repeatable customer activity while remaining sensitive to volatility and market conditions.

Lending brings credit cycles and balance sheet considerations into the equation. Two founders can therefore announce identical ARR figures while describing businesses with very different levels of predictability.

AI has recently made the terminology even more entertaining. The extraordinary speed at which some AI companies have reported revenue growth has encouraged closer examination of what exactly sits inside those numbers.

Investors have debated the treatment of contracted revenue, customers that have signed but have yet to go live, unusually strong recent months and annualised figures based on very short trading periods.

None of those calculations is inherently absurd. They simply answer different questions. If a company earns £1 million in January and calls itself a £12 million annualised run rate business, the arithmetic is beyond reproach. Whether January will repeat itself another eleven times is the more interesting question.

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What the Number Needs to Tell Us

For fintech, that distinction matters enormously because transaction volumes can move, customers can ramp at different speeds, and market activity can make one quarter look rather more handsome than the next. A headline figure becomes useful only when readers can understand the machinery producing it.

That is the standard I would apply if we publish one ourselves. I would want people to know the period being annualised, how much revenue is live today, how much has been contractually committed, whether a handful of customers account for a large share of it and how the economics change as volumes grow.

A smaller figure with a clear explanation tells me considerably more about a business than a giant number that develops complications the moment somebody opens Excel.

Fintech Grows up

The interest in ARR also says something about where fintech Fintech Financial Technology (fintech) is defined as ay technology that is geared towards automating and enhancing the delivery and application of financial services. The origin of the term fintechs can be traced back to the 1990s where it was primarily used as a back-end system technology for renowned financial institutions. However, it has since grown outside the business sector with an increased focus upon consumer services.What Purpose Do Fintechs Serve?The main purpose of fintechs would be to suppl Financial Technology (fintech) is defined as ay technology that is geared towards automating and enhancing the delivery and application of financial services. The origin of the term fintechs can be traced back to the 1990s where it was primarily used as a back-end system technology for renowned financial institutions. However, it has since grown outside the business sector with an increased focus upon consumer services.What Purpose Do Fintechs Serve?The main purpose of fintechs would be to suppl Read this Term now sits in the wider technology market. AI has taken over much of the role fintech occupied during the last investment cycle.

It attracts astonishing amounts of capital, produces founders who become famous remarkably quickly and generates revenue milestones at a speed that has caused an entire venture industry to reach repeatedly for its calculator.

Fintech, meanwhile, is growing up. That sounds less glamorous than being the next technological revolution, although there are worse commercial positions to occupy.

Many fintech businesses now have regulated operations, institutional customers, established payment flows, banking relationships and years of operating data. The sector can increasingly make its case through what customers actually use and pay for.

ARR fits that stage of development rather well. It also comes with a danger familiar to anyone who lived through the valuation boom. Once a number becomes associated with success, companies inevitably become inventive about making the number larger.

The Risk of Another Vanity Metric

A decade ago, valuation sometimes told us more about the availability of capital than the quality of the company receiving it. ARR could acquire the same weakness if every form of projected, committed, annualised, and repeatable revenue ends up placed beneath one convenient acronym.

That would be a shame because the underlying change is healthy. Fintech should be able to show that businesses are generating substantial revenue, that customers stay with them, and that years of investment have produced companies with genuine commercial weight.

Publishing those figures gives the market more information and gives management teams something more demanding to talk about than the valuation attached to their last funding round.

But if ARR is going to become fintech’s new favourite number, the industry should spend a little less time admiring the acronym and a little more time explaining the arithmetic.