September 22, 2023


Delighting finance buffs

The Role of Transaction Categorization in Open Banking

Data categorization with open banking: how does it work?

Open banking has transformed the financial industry allowing for more competition, transparency, and change in the sector for both companies and consumers. An essential part of open banking is transaction categorization, which gives customers better financial insights and overall experience when it comes to transactions, budgeting, and expenditures. In this blog, we will understand the role of transaction categorization and its impact. 

What is open banking?

Open banking provides third-party service providers access to consumer banking and other financial data using application programming interfaces or APIs. It allows the networking of accounts for the use of consumers and third-party service providers.

What is transaction categorization?

Transaction categorization is the process of classifying financial transactions into different categories according to their nature. While consumers can categorize these transactions manually, it is extremely time-consuming, with the help of transaction categorization, artificial intelligence, and machine learning makes this process extremely efficient and accurate. 

Key Roles of Transaction Categorization

  1. Financial Insights: With the use of transaction categorization, consumers can learn more about their financial spending. As artificial intelligence categorizes the transactions, people can immediately identify where they overspend, which can help them be careful while making their next purchase.
  2. Expense Tracking: Transaction categorization lets consumers track their spending in real time. Using proper categorization, consumers can get instant alerts if they go over a budget or spend more than the limit in certain categories. 
  3. Personalized Recommendations: Financial organizations can collect huge amounts of data to offer personalized spending recommendations for their consumers. By studying their spending history and behavior, they can suggest personalized products and even saving strategies according to personal needs. This process can heighten the sense of loyalty and customer satisfaction. Genify is one of the best merchants in the open banking world, offering such solutions.
  4. Better Financial Planning: Better financial planning is supported by transaction categorization for both customers and financial organizations. Individuals can set practical financial objectives, make efficient savings strategies, and decide on investments or debt management by having a clear awareness of their spending patterns. Financial institutions can use aggregated and anonymized transaction data to analyze market trends, pinpoint consumer subgroups, and create niche goods and services that address particular needs.
  5. Fraud Detection: Transaction categorization is essential for security measures and the detection of fraud. Financial institutions can spot and warn against unauthorized or suspicious actions in real-time by analyzing transaction patterns. The ability to categorize transactions makes it easier to discern between genuine and fraudulent ones, enabling consumers to take swift action to stop financial loss and safeguard their accounts and personal information.
  6. Regulatory Requirements: Initiatives related to open banking must adhere to strong compliance and regulatory standards, including those relating to data security and privacy. The proper processing, anonymization, and encryption of sensitive financial data are made possible by transaction categorization, which is essential in fulfilling these requirements. Providing accurate reports and audit trails for the purpose of regulatory compliance is another benefit of categorization.


In conclusion, transaction categorization has proved extremely important and efficient in the banking sector, providing certain benefits to both customers and banks. As open banking continues to progress, transaction categorization and API providers like Genify will be key components in empowering consumers to make better financial decisions. You can also use Genify to build next-gen products related to Banking and Finance.