What is a Transaction Processing System TPS? Features, Examples, and Importance

Keeping track of your transactions is crucial! If you’re a business owner looking to operate in different segments of society, then you should invest in the technology of the Transaction Processing System. 

A Transaction Processing System (TPS) is an information system that captures, processes, and stores business transactions, ensuring data integrity and efficiency. In 2023, TPS handled over 206 billion digital transactions in the U.S. alone, a 7% increase from 2022, according to the Federal Reserve’s Payments Study.

The IBM Transaction Processing Facility (TPF), a widely used TPS, processes up to 100,000 transactions per second, per IBM’s 2024 performance metrics, showcasing its speed and reliability crucial for industries like banking and airlines.

What is a transaction processing system?

A transaction processing system (TPS) or real-time processing, is an information processing system for business transactions involving the collection, modification, and retrieval of all transaction data.

It is also software that ensures the completion of a business transaction and also keeps track of transactions. A transaction system ensures that each transaction is successful by storing, sending, and receiving information via a database.

A transaction processing system is often contrasted with a batch processing system, where many requests are executed at once. In transaction processing, there is no delay, and the results of each transaction are immediately available.

During the delay time for batch processing, errors can occur. Although errors can occur in transaction processing, they are infrequent and tolerated but do not warrant shutting down the entire system.

Since a TPS is a real-time processing system, all the events and transactions that occur in the organization or over the system are processed immediately, causing no delay. It is one of the most commonly used technologies in all online transactions and is called an Online Transaction Processing System (OLTP).

A symbolic representation of a payroll transaction processing system (TPS) 

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Features of Transaction Processing System

Below are some features of the transaction processing system;

Speed Processing

The speedy process of transactions is important to the success of any enterprise, more than ever with the changes in technology and client demand for immediate action. TPS’ are designed to process transactions just instantly to confirm that client data is out there to process what is needed.

Controlled Access

Since TPS systems are often such a strong business tool, access should be restricted to only those workers who thwarted their use. Limited access to the system ensures that workers who lack the talent to regulate it can not influence the transaction process.

Real-Time Processing

In several circumstances, the first issue is speed. As an example, once a bank client withdraws an amount of cash from their account, it’s very important to process the transaction and update the account balance as persistently as possible, permitting both the bank and the client to stay on track of funds.

Batch Processing

The batch process could be a resource-saving group action that stores knowledge for processing at predefined times. Batch processing is helpful for enterprises that require processing massive amounts of information using restricted resources.

One example of batch processing is a Mastercard transaction. The transactions area unit is processed monthly instead of in real-time. Mastercard transactions are only processed once a month. This is to provide a statement for the client, so batch processing saves IT resources from having to process every single transaction separately.

Functional level

The functional level is the middle level in which management makes a plan of action for decisions that are important to the organization because they are thought of as being more educated and responsible than operation-level management but don’t have as much authority as strategic-level management, Their decisions tend to be more intermediate-term issues that the organization needs in order to complete tasks. 

Decision Support Systems (DSS)

A decision support system is a category of information system that supports business and structures decision-making activities.

A properly designed decision support system is a user-friendly software-based system supposed to assist managers in making decisions and compile helpful information from a mixture of data, documents, or business models to spot and solve issues and make decisions.

Types of transaction processing systems

There are two types of processing systems, and they are;

• Batch processing and

• Real-time processing

1. Batch processing: Through batch processing, a TPS interprets sets or batches of data by grouping items based on similarities. Batch processing can create a time delay because it reviews several sets of data simultaneously, requiring more computing power.
2. Real-time processing: real-time processing is a method to process transactions as they appear. This helps prevent delays in processing and can provide a more accurate result. 

Transaction processing system components

Each TPS has four major components that help it function, and they include;

1. Inputs: an input is an original request for a product or payment that an outside party sends to a company’s TPS. If your company in any way uses batch processing, its TPS stores groups of inputs and then processes them at a later time. In comparison, if your company uses a real-time system, it is likely to process each input as it arrives.

Inputs typically include:

• Invoices
• Bills
• Custom order and 
• Coupons

2. Processing System: The processing system always reads each input and creates a useful output, such as a receipt. This element can help you define the input data and what the output should be. Based on the kind of TPS your company is using, processing times can vary.
3. Storage: The storage component of TPS refers to where a company keeps its input and output data. Some companies store these documents in a database. The storage component ensures the organization, security, and accessibility of every document for later use.
4. Outputs: TPS outputs are documents the system generates once it completes processing all inputs, such as receipts the company stores in its records. These documents can help validate a sale or transaction and provide important reference information for tax and other official purposes.

Examples of transaction processing systems

A transaction processing system consists of computer hardware and software hosting a transaction-oriented application that performs the routine transactions necessary to conduct business.

Examples include systems that manage sales order entry, airline reservations, payroll, employee records, manufacturing, and shipping.

An ATM (automated teller machine) is also a good example of a transaction processing system, as it processes each transaction based on the customer and the amount required. Enterprise Resource planning is also a good example of a transaction processing system.

Importance of Transaction Processing System

In transaction processing, customer interaction is required, unlike batch processing. It allows only certain predefined, typically short-duration, tasks and transactions to be performed by the user and provides a predictable request execution time that is pre-programmed. 

As such, it has the following characteristics:

1.  Predictability

2.  Reliability

3.  Consistency

Transaction processing systems are helpful in three areas;

1. System runtime function: an execution environment with high response time, reliability of execution, and data security.

2. System administration functions: administrative support is required for managing transactions.

3. Application development functions: customization support to design and manage the user interface

A Transaction Processing System is also used to collect, store, retrieve, and modify transactions executed by an organization.

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