Free Bank Transaction Categorizer

How do banks categorize transactions?

Banks categorize transactions using automated systems and manual processes to classify expenses into predefined categories. Here's how banks typically categorize transactions:

1. Merchant Category Codes (MCCs): Each transaction is assigned a Merchant Category Code (MCC) based on the type of business where the transaction occurred. MCCs are standardized four-digit numbers that help identify the merchant's primary business activity, such as restaurants, gas stations, or grocery stores.

2. Automated Categorization: Banks use advance algorithms and machine learning to analyze transaction data, including the merchant name, transaction amount, and MCC. These algorithms automatically classify transactions into dining, travel, or healthcare categories based on patterns and predefined rules.

3. Personal Financial Management (PFM) Tools: Many banks offer PFM tools within their online banking platforms or mobile apps. These tools allow customers to review and modify the automatically assigned categories, create custom categories, and split transactions between multiple categories.

4. Manual Review: Sometimes, bank employees may manually review and categorize transactions, particularly for large or unusual expenses that do not fit into predefined categories.

5. Customer Feedback: Banks may also rely on customer feedback to improve their categorization accuracy. Customers can report miscategorized transactions or suggest new categories, helping banks refine their algorithms and provide a more personalized experience.

6. Third-Party Data: Some banks partner with third-party data providers to enhance transaction categorization capabilities. These providers offer additional data points and insights to improve expense classification accuracy.