Personal Finance Management is designed to help consumers track their spending, set budgets, and achieve their financial goals, but in the past years, it has become much more than that. Digital banks like bunq or Tomorrow are starting to offer additional features to help customers see how their spending affects the environment around them. We are talking about checking your carbon footprint with a breakdown of spending categories, savings pockets or category restrictions for better control of your finances.
A well-designed PFM platform leads to bigger deposits, lower chargeback rates or customer service calls, and more frequent transactions. Essentially, it positions the bank as the primary financial partner in a customer’s life. But there is a driving force behind all that – transaction data. Specifically, enriched transaction data that powers personalised, insightful, and actionable financial experiences.
The adoption of open banking has opened new possibilities for PFM tools, particularly in the realm of multi-banking. Consumers today often have accounts with multiple financial institutions, and they expect their PFM tools to provide a complex view of their finances, regardless of where their accounts are held. And for all the tools to work together in the best and most accurate way possible, you need enhanced data with a full list of data points, which gives banks much richer and more precise information from transactions and payments.
Did you know?
According to a study by Accenture, 76% of banks worldwide expect customer adoption and open banking application programming interface (API) usage to increase by 50% or more in the next three to five years.
The challenge lies in current open banking regulations, such as the European Union's PSD2 and the forthcoming PSD3, and their impact on data sharing. These regulations require banks to share transaction data with third-party providers, primarily to ensure security and privacy. While pushing banks to share this data is a step in the right direction, many still provide only the bare minimum needed to meet regulatory requirements. As a result, only 2-3 data points may be available for enrichment, rather than the typical 9, which negatively affects the quality of the data, making enrichment nearly impossible or very limited at best. More data points lead to much more accurate and precise enrichment, as raw open banking data alone is insufficient. This, in turn, enables PFM solutions that are truly useful. Unfortunately, this has yet to become a modern standard.
Did you know?
According to Optima Consultancy report, about 42 % of PFMs allow users to connect their other bank accounts, while only 8 % show proper merchant location and map.
By enhancing the raw transaction data, financial institutions can actually make raw open banking data useful and deliver much more detailed and valuable insights, which is simply not possible without enhancing those raw data. Data enrichment involves adding layers of information, such as merchant details, transaction categorisation, and contextual tags, to basic transaction records. This allows PFMs to provide users with a clear, accurate picture of their spending habits and financial health. There are many benefits to it for both the banks and the clients, including enhanced clarity of any financial activity, improved budgeting and expenses tracking, much more personalised insights for a long-term financial health or better cross-selling opportunities for banks thanks to a deeper understanding of customer spending patterns and behaviors.
A perfect finance management environment is usually centred around the two most important pillars of digital banking in general:
1. Merchant Identification - One of the primary challenges in transaction data is the lack of clear merchant information. Often, transactions are recorded with vague or incomplete identifiers, such as "SB RIVES SC," which leaves consumers confused about the nature of the purchase. Transaction data enrichment involves using algorithms and databases to match these cryptic entries with recognizable merchant names. For example, the entry "SB RIVES SC" could be transformed into "Starbucks – Food and Drink," giving the user immediate clarity on what was purchased and where. Additional information, such as Google Places ID, more accurate merchant logos and descriptions also helps clarify the transaction.
2. Categorisation - Categorisation is another crucial aspect of proper transaction data usage. Raw transaction data typically lacks context, making it difficult for users to see how much they’re spending across different areas of their lives. By categorising transactions into groups such as groceries, utilities, subscriptions, entertainment, and dining, enrichment helps users quickly assess their spending patterns. Instead of seeing a long list of transactions that require manual interpretation, users can see summaries of how much they spent in each category timeframe.
This unlocks the potential for hyper-personalisation. Consumers today expect their financial tools to understand their unique circumstances and provide tailored advice. For that, you need enriched transaction data as a stable foundation that offers clarity and rich information baseline (let's call it a first layer). To have truly personalised insights and recommendations that go far beyond generic budgeting tips, you need to truly know your customer. And you simply can´t do that without good, highly accurate data.
Did you know?
A survey by Sinch revealed that 93% of respondents desire personalised financial assessments from their banks, but less than 30% feel they are receiving the real-time, interactive problem-solving experiences.
This level of personalisation is what sets modern PFMs apart from their predecessors. It’s also what keeps users engaged and coming back to the tool, which in turn drives more transactions and deepens the customer’s relationship with the bank.
As we move into the new era of banking, so do the PFM tools. Consumers are no longer satisfied with simple financial trackers; they need dynamic, intelligent solutions that can adapt to their needs and provide real-time value. To meet these demands, the next generation of PFM tools must achieve several key objectives:
Multibanking friendly - The modern consumer has relationships with multiple financial institutions - whether it's checking accounts, savings, credit cards, loans, or investments. And they expect a unified view of all their finances in one place. A successful PFM must seamlessly integrate with these diverse accounts and financial products, giving users a complete view of their financial lives. To achieve this, it’s crucial to use all the data points available, properly enhanced by providers like Tapix.
Real-Time Insights - With the rapid advancement of data analytics and AI, PFM tools must move beyond monthly summaries and provide instant analysis and feedback. A survey by FICO found that 79% of banking customers expect their financial services to offer real-time notifications and updates on their spending and saving patterns. From spending categories visible through payment notifications to correctly tagged recurring payments and subscriptions, a key to such highly detailed information is proper data enrichment.
Proactive Recommendations - PFM tools should do more than just passively display data - they must actively assist users in improving their financial health. This means offering personalised, actionable advice based on enriched transaction data and predictive analytics. For instance, if a user consistently spends more on dining out than they can afford, the PFM tool should suggest ways to cut back or provide product recommendations like cashback credit cards tailored to their spending habits. This cannot happen without accurate and consistent enrichment that feeds data from clients' habits and spending patterns directly into any financial advice the bank can give.
Did you know?
According to research from McKinsey, personalised financial advice can increase customer satisfaction by up to 15% and lead to a 20% higher likelihood of retaining those customers.
User-Friendly Design - Even with advanced features, a PFM tool must offer a user-friendly design to succeed, be it a visually appealing merchant description with a logo, map and a location, or an easy way to move through all the payments without getting lost. A clunky or confusing interface can drive users away, regardless of how powerful the technology behind it may be, so following the core rules of successful user experience is a must. For instance, Finextra’s research shows that 60% of users will abandon a financial app if they find it difficult to navigate, emphasizing the importance of an intuitive and engaging user experience.
Data Enrichment as the Foundation - Enriched transaction data provides the depth and context necessary for seamless integration, real-time insights, proactive recommendations, and user-friendly design. Most of all, it serves as a foundation for everything else. By categorising transactions, identifying merchants, and adding contextual details, enriched data transforms basic banking tools into powerful financial management platforms.
Learn more about building a perfect PFM platform.
About author
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Michal Maliarov
Senior insider
