Transaction Processing System: What It Means, Types & All to Know

When buying something in a store or online, money must be exchanged. This exchange takes place through a number of procedures that help transfer the money to the retailer and the product to the client. To complete the sale, each transaction depends on the efficiency of TBS. This article explores the types, functions, and advantages of transaction processing systems. It also explains the transaction processing cycle.

Transaction Processing System

A TBS is a piece of software that guarantees the success of business transactions and keeps track of them. Online retailers utilize an equivalent technology called an online transaction processing system (OTPS) for e-commerce.

The TPS uses a database to store, send, and receive information to guarantee the success of every transaction. It is an addition to the business point of sale system (POS), which is the device that processes cash transactions, generates receipts, and reads credit cards.

A customer might use a credit card, for instance, to buy a book from a store. A TPS collects the customer’s card information and then contacts their bank to determine whether to approve or reject the transaction based on their account balance.

Features

A TPS must have the following characteristics, among others:

Controlled access: TPSs are effective corporate resources. Therefore, it is only accessible to authorized staff. In other words, it restricts who can manage and execute transactions.
Connection to the external environment: By providing information to suppliers and clients, TPS forges a connection with the external environment.
Fast response: Companies cannot afford to let their clients wait a long time to complete a transaction, hence, this aspect is essential for a TPS.
Lack of flexibility: To improve efficiency, a TPS handles all transactions in the same way, regardless of the day of the week, the user, or the client.
Customers do not accept faults, so a TPS must be dependable and have sufficient security and safety measures.
Distribution of information to other systems: A TPS generates and provides data to various systems. General ledger systems, for instance, get information from sales processing systems. Transaction processing system types

Types of Transaction Processing Systems

These are the two various types of TPS that exist:

#1. Batch processing

A TPS interprets sets, or batches, of data through batch processing by putting things in groups based on similarities. Because batch processing examines multiple data sets simultaneously and requires greater computing resources, it can cause a delay.

Example: A customer pays for a subscription service at the end of the month. Because the transactions happen at the same time, the TPS system processes them as a batch. As the system only interprets batches once a month in this instance, a delay in transaction processing is acceptable.

#2. Real-time processing

Real-time processing is a technique for handling transactions right away. As a result, processing isn’t delayed, and the outcome might be more precise.

For instance, an e-commerce website might use a TPS to handle credit card transactions in real time to ensure payment before the company starts its fulfillment process. Real-time transaction processing speeds up overall response times and aids in the prompt identification and correction of problems.

Components of a Transaction Processing System

There are four main parts to each TPS that make it work:

#1. Sources

An original product or payment request sent by a third party to a business’ TPS is referred to as input. If your business employs batch processing, its TPS will store batches of inputs for further processing. In contrast, a real-time system that your company uses would process each input as it came in. Typical inputs include:

Bills,
Invoices,
Coupons
Bespoke orders

#2. Computerized System

The processing system reads each input and then produces a useful output, like a receipt. You can define the input data and the desired output with the aid of this element. Processing times can differ depending on the type of TPS your business uses.

#3. Keeping

The location of a company’s input and output data is referred to as the storage component of TPS. These materials are kept in databases by some businesses. Every document is organized, secure, and easily accessible for future usage thanks to the storage component.

You can examine your system’s storage to discover the invoice and see if you delivered a payment, for instance, if a vendor wants to certify that your business has paid an invoice.

#4. Results

TPS outputs are the papers that the system creates once it has finished processing all inputs, such as the receipts that the business keeps on file. These records can support the legitimacy of a purchase or transaction and offer crucial information for tax and other formal purposes.

For instance, if a vendor sends your business an invoice, you can pay the invoice and notify the vendor that your money has been received. The original invoice can then be modified, and it can then be marked as “paid” in the business’ TPS.

TPS Advantages

Here are a few typical advantages of using a TPS:

#1. Faster Transactional Times

With a TPS in place, businesses can efficiently speed up every transaction to reduce client wait times. While some systems execute transactions immediately, others gather transaction data over a predetermined time period and process it later, frequently beyond business hours.

#2. Increased Cost Effectiveness

A TPS may manage and carry out tens of thousands of transactions per day. Avoiding the need to modernize the system or employ several systems to handle demand, can save money.

#3. Increased Dependability

You can make sure that you swiftly and accurately execute consumer transactions by using a TPS. A trustworthy TPS can also assist your business in saving money on potential coding or troubleshooting fees for broken systems.

#4. Automated Administration

The majority of a company’s internal resource and revenue management is automated via ATPS. Employees can examine transactions with less effort by increasing automation. Automation plays a significant role in boosting a company’s profitability since it gives workers more time to concentrate on interesting jobs that call for critical thought.

Example of Transaction Processing System

To better comprehend the idea, let’s look at a few examples of transaction processing systems.

Example #1

Let’s say David bought a t-shirt from Amazon, an online retailer of clothing and accessories. He paid for the item with his credit card. The business’s TPS gathered the credit card information, got in touch with its bank, and authorized the purchase depending on the balance in David’s account.

Example #2

Let’s say John subscribes to Chill TV at the beginning of each month so he may view the newest TV episodes and movies. The TPS at Chill TV handles each transaction as it happens. The system uses a lot of computer power because it processes a collection of transactions once a month. Therefore, in this instance, a delay in transaction processing is acceptable.

Advantages and Disadvantages of TPS

Let’s examine the advantages and restrictions of a TPS:

Advantages

A TPS aids businesses in saving money by reducing the need to upgrade their system or employ numerous systems to meet demand.
Businesses can use a TPS to process transactions accurately and quickly.
A TPS automates a sizeable portion of internal resources and revenue management for a business. Employees can review transactions more quickly as a result. They also have more time to devote to critical thinking tasks as a result of this.
It enables companies to operate remotely across a variety of market categories. This makes it possible for businesses to investigate untapped markets.

Disadvantages

There is no set structure for a TPS.
Businesses must pay a sizable setup cost to begin using TPS.
Hardware and software incompatibilities do occur occasionally.
Due to numerous transactions, a TPS could stop functioning or start to lag.

Functions of Transaction Processing System

Transaction processing systems function by providing the following services:

#1. Functions of the System Runtime

Systems for transaction processing offer an environment for execution that guarantees the security, availability, and integrity of data. Additionally, they provide high transaction throughput and quick response times.

#2. Functions of System Administration

Systems for processing transactions offer administrative assistance that enables users to set up, maintain, and administer their transaction systems.

#3. Functions of Application Development

Transaction processing systems offer functions for use in unique business applications, such as data access, inter-computer connection, and user interface design and management.

Transaction Processing Cycle

Data from business transactions is processed by cross-functional information systems known as transaction processing systems. Transactions are activities taken in the course of conducting business, such as making purchases, making deposits, etc. Transaction processing cycles record business transactions by capturing process data, updating organizational databases, and creating a range of formation products. The basic actions of the transaction processing cycle are as follows:

#1. Data Entry

The collection of business data is the initial phase of the transaction processing cycle. Data can be gathered, for instance, by optically scanning barcodes.

Processing transactions: There are basically two methods for doing so.
Transaction data is gathered over time and processed in batches on a regular basis.
Data are handled in real-time (also known as “on time”) as soon as a transaction takes place.

#2. Database upkeep

Transaction processing systems update an organization’s corporate databases to reflect changes brought on by regular business transactions.

Generation of documents and reports: The transaction processing system generated numerous documents and reports. Purchases, for instance, orders payable register, etc.

#3. Processing of Inquiries

Transaction processing systems notify a person to ask questions and receive answers based on the outcomes of transaction processing operations. You may, for instance, use your PC to check the balance of an account and get instant results. Thus, the transaction processing cycle’s many phases are listed.

Is Transaction Processing System a Software?

The term “transaction processing system” (TPS) refers to a software system or software/hardware combination that facilitates transaction processing.

What Are the Four Parts of the Transaction Processing Cycle?

Data entry into paper journals and ledgers occurs in manual systems. The series of activities carried out on data in computer-based systems is referred to as the data processing cycle. Four steps make up the data processing cycle: data input, data storage, data processing, and information output.

What Is the Purpose of Tps?

A database system that maintains transaction programs uses a transaction processing system (TPS) to assist users in processing data transactions. It keeps the acquisition of goods and services for a certain organization in check and in balance.