Categorising SME Bank Transactions with Machine Learning and Synthetic Data Generation

TL;DR

This paper presents a machine learning pipeline that uses synthetic data generation to improve categorization of SME bank transactions, addressing challenges of data scarcity and imbalance for better lending decisions.

Contribution

It introduces a novel synthetic data generation method combined with a calibration approach to enhance transaction classification accuracy in SME lending.

Findings

Achieved 73.49% accuracy on real data

High-confidence predictions reach 90.36% accuracy

Model generalizes well across different SME types

Abstract

Despite their significant economic contributions, Small and Medium Enterprises (SMEs) face persistent barriers to securing traditional financing due to information asymmetries. Cash flow lending has emerged as a promising alternative, but its effectiveness depends on accurate modelling of transaction-level data. The main challenge in SME transaction analysis lies in the unstructured nature of textual descriptions, characterised by extreme abbreviations, limited context, and imbalanced label distributions. While consumer transaction descriptions often show significant commonalities across individuals, SME transaction descriptions are typically nonstandard and inconsistent across businesses and industries. To address some of these challenges, we propose a bank categorisation pipeline that leverages synthetic data generation to augment existing transaction data sets. Our approach comprises three core components: (1) a synthetic data generation module that replicates transaction properties while preserving context and semantic meaning; (2) a fine-tuned classification model trained on this enriched dataset; and (3) a calibration methodology that aligns model outputs with real-world label distributions. Experimental results demonstrate that our approach achieves 73.49% (+-5.09) standard accuracy on held-out data, with high-confidence predictions reaching 90.36% (+-6.52) accuracy. The model exhibits robust generalisation across different types of SMEs and transactions, which makes it suitable for practical deployment in cash-flow lending applications. By addressing core data challenges, namely, scarcity, noise, and imbalance, our framework provides a practical solution to build robust classification systems in data-sparse SME lending contexts.