Transaction Processing System:

A type of information system that collects, stores, modifies and retrieves the data
transactions of an enterprise is known as transaction processing system (TPS).

A transaction is an event that generates or modifies data that is eventually stored on an
information system. The main information processes are collecting and storing. The success of
commercial enterprises depends on the reliable processing of transactions to ensure that customer
orders are met on time. That’s why the field of transaction processing has become a vital part of
effective business management.

Characteristics of TPS:

The four important features of transaction processing system are:

 Rapid response
 Reliability
 Inflexibility
 Controlled processing
1. Rapid response:
Fast performance with a rapid response is critical. Input must become output in
seconds so customers do not wait.
2. Reliability:
 Organizations rely on their transaction processing systems with failure possibly
stopping business. Back-up and recovery procedures must be quick and accurate.
3. Inflexibility:
A transaction processing system treats every transaction equally. It may be used
many times each day which means it has to be precise and flexible.
4. Controlled Processing:
It maintains specific operations for the roles and responsibilities of different
employees.

Types of TPS:

There are two types of transaction processing system.

 Batch processing system

 Real time processing system
i. Batch Processing:
A system in which business transactions are accumulated over a period of time and
prepared for processing as a single unit or batch is known as batch processing. BTP
collects the transaction data as a group and processes it later as batches of identical
data. It is processed when convenient or economical to do so. It is collected and stored
transaction data offline using magnetic tape or paper. It has three disadvantages:
 Transactions must wait for processing as schedule is predetermined.
 Errors cannot be corrected during processing.
 Sorting transaction data is expensive and time consuming.

Examples:

Cheque clearance

Credit card transactions

ii. Real Time Processing:

A system whereby each transaction is processed immediately without the delay of
accumulating transactions into a batch is known as real time transaction processing. It
generally requires greater resources than batch processing.
 Examples:

Reservation system

Library loan system

Applications of TPS:

There are many applications of transaction processing system. Some of them are given
below:

i. Sales order entry:

The sales order (a confirmation document) can be created once the quote is accepted
by your prospective customer and the purchase order is sent by the customer for further
processing. It involves:
 Respond to customer inquiries about account balances.
 Decide what type of credit terms offer to a customer.
 Select policies about sales and warranties.
ii. ATM:
 The purpose of an ATM (automated teller machine) is that to allow the user to partake
in financial transactions. This transaction processing system is a real time processing
system.
iii. Reservation System:
A computerized system that stores and distributes customer’s information for the
booking of items such as a hotel room or a seat at an event. Customers contacts the
system that takes the customer’s detail for booking and bank information. System
checks the customer payment details from the bank. After approval from the bank,
confirmation of booking has done.
iv. Payroll:
A payroll system is a typical accounting TPS that processes transactions such as
employee time cards and changes in employee salaries and deductions. It keeps track of
money paid to employees, withholding tax, and paychecks.

v. Library Loan System:

It is used to keep track of items borrowed from the library. When a book is
borrowed, the librarian scans the barcode on the person’s membership card and the book.
This information and the date are immediately recorded on the library database.