A transaction processing system (TPS) helps users process data transactions within a database system that tracks transaction programs. It maintains balance and control of a particular organization’s process of purchasing goods and services. It is responsible for coordinating the inventory and distribution of products, managing transactions from payment accounts, and processing sales and payrolls. As such, it is highly beneficial when monitoring online transactions, as it allows for a momentary delay between when a product is purchased to when it was sold.

An example of a transaction processing system at work is when a customer buys a concert ticket. While the customer fills out his/her payment details, the system holds the ticket for him/her so no other customers can buy it. In short, the system is critical in ensuring that each ticket will not have two different owners.

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A TPS contains the information involved in gathering, changing, and retrieving transaction data. At the very least, it must be reliable and consistent to ensure that each transaction proceeds without problems.

What Are the Benefits of Using a Transaction Processing System?

Transaction processing systems have notable advantages, which include:

Ability to Process Large Amounts of Data

Transaction processing systems are commonly used by organizations that handle online transactions. The systems allow them to process thousands of purchases by coordinating banking and personal details as well as process and ship orders to the correct buyers. They make it easier for both the seller and the buyer to manage purchases.

Capability to Handle Hardware and Security Issues

A TPS utilizes both software and hardware to manage thousands of business and user data. It is, however, prone to security breaches, since most threat actors always attempt to steal confidential information. A reliable transaction processing system often has robust computer security that can prevent data breaches and protect consumer information.

Additionally, transaction processing systems can also prevent the loss of user information in case of a terminal or network failure by recovering from the last operating system (OS) state.

Capacity to Provide Improved Access to Markets

By using a transaction processing system, organizations can tap several markets at once. They can offer products and services to a broader market, especially now that most brands employ market penetration strategies. Since a transaction processing system can work anywhere, organizations are not limited by geography or language when offering goods and services.

What Are the Components of a Transaction Processing System?

The components of a TPS are:

  • Inputs: Typically the source documents obtained from transactions that serve as inputs to an accounting system. Examples of these are invoices and customer order slips.
  • Processing system: This component breaks down the information contained in the inputs into a format that the computer can understand.
  • Storage device: This component is that part of the computer’s memory where the processed information is saved in the form of a ledger or report.
  • Outputs: These refer to all the records or reports generated by a transaction processing system.

What Are the Types of Transaction Processing Systems?

There are at least four types of transansaction processing systems and they differ in terms of primary function and application.

Sales and Marketing Systems

A sales and marketing transaction processing system handles customer service, sales management, promotion tracking, pricing changes, and dealer communications. Examples include sales order information, sales commission, and sales support systems.

Manufacturing and Production Systems

Manufacturing and production transaction processing systems manage scheduling, purchasing, shipping or receiving, and operations processes. Examples include machine control, purchase order, and quality control systems.

Finance and Accounting Systems

A finance and accounting transaction processing system tackles general ledger-, billing-, and cost accounting-related operations. Examples include general ledger, payroll, accounts receivable and payable, and funds management systems.

Human Resources (HR) Systems

HR transaction processing systems ease the management of personnel records, benefits, compensations, labor relations, and training. Examples include employee records, employee benefits, and employee skills inventory systems.

The transaction processing systems that academic institutions and other kinds of organizations use fall under “Others.”

What Are Examples of Transaction Processing Systems?

Some real-world examples of transaction processing systems are:

  • Point-of-sale (PoS) systems
  • Online order-processing systems
  • Automated teller machines (ATMs)
  • Online banking systems
  • Airline seat reservation systems
  • Hotel booking systems
  • Inventory management systems
  • Human resource management (HRM) systems
  • Healthcare management software

Batch and Real-Time Transaction Processing Systems: What Are They and How Do They Differ?

In general, there are two ways to process transactions—by batch or in real-time. In batch transaction processing systems, all operations are stored over time and processed at once or by batch. For example, an organization may choose to process payroll data every two weeks. There is a delay between data gathering and transaction processing.

In real-time processing, all transactions are automatically processed as they are made. There are no delays. As such, all data in the system always indicates the current transaction status. An example would be what happens in an online ticketing system. It always shows the number of tickets available or the seats that are already taken. All changes are immediately reflected in the system.

In some cases, real-time transaction processing systems provide more efficient and reliable data. But, there may be cases when batch processing may be more effective.

While transaction processing systems are highly reliable and practical, they can also make errors, albeit infrequently and do not necessarily cause many system issues.

Key Takeaways