Personal financial management (PFM) services are falling short of their potential because financial institutions aren't collecting enough data on payments to property categorize purchases.

In-app payments, which provide a more directly line between the transaction and the purchased item, can help improve the data gap.

While PFM should automatically divide products into categories (milk into “food," knives into “kitchen equipment," tires into “car parts,” etc.), then show  these purchase as a function of expenditures and incomes, most traditional payments methods do not provide enough information to execute this segmentation accurately.

If you use PFM provided by your mobile banking application it probably won’t categorize your shopping correctly, and your shoes may as well be recognized as “dog food."

There are a number of reasons for this. A bank doesn’t have a sufficient amount of data to categorize a consumer's shopping, because the information it receives from shops is limited. In some cases the only thing bank knows is when the product was bought and who sold it. In other cases the data may also be incorrect. And if a store employee decides to assign a toaster, a towel and candles to the "grocery" category, these items will also be inaccurately categorized by the PFM engine.

Payments made through third party providers, such as mobile wallets, can provide even less clarity. A bank can only determine the payment provider that handled the transaction, and the entire shopping list can land in an “other purchases” category.

And cash poses added challenges. Paper money historically has large share in our daily spending and little expenses like taxis, parking tickets or snacks are traditionally paid using cash, which doesn't provide a detailed data trail.

The result is a PFM monthly summary doesn’t reflect reality, and the user has to categorize his shopping himself.

A bank must be able to monitor as large part of costumer payments as possible in order to collect more data about the products a consumer bought.

Enabling in-app purchases can provide more detailed information on shopping. Bank Zachodni WBK, one of Santander’s largest network banks, has taken the first steps in collecting data from almost every aspect of its customer shopping. Its mobile wallet allows users to make in-app purchases directly from shops and services embedded in the app (bus tickets, groceries with home delivery etc.), make bank transfers or mobile payments (including in-store payments within the next few months). Similar in-app purchase solutions can be found in ICIC Bank’s or Privat Bank’s offers.

PFM solutions have been on the market for more than a decade, so it is the right time to make them useful.

Tomasz Krajewski is the head of m-commerce at eLeader in Lublin, Poland.