MIT 826
INFORMATION SYSTEMS
PRESENTATION
TOPIC:
TRANSACTION PROCESSING
SYSTEM
GROUP 1
WHAT IS A TRANSACTION PROCESSING SYSTEM?
A transaction processing system is an information system business
tool consisting of computer hardware and software that hosts an
application whose purpose is to carry out transactions for running or
undertaking business. Practically, a TPS system gathers, stores, alters,
and retrieves data transactions in a business.
The main purpose of the TPS is to process, in real-time, a company’s business
transactions and support the business's functionality. TPSs are used in almost
every sector where an online transaction occurs, such as airline bookings,
hotels, banks, malls, online purchases in retail such as online shopping, and
ticket sales for concerts, plays, and movies.
Transaction Processing Systems serves as the backbone of payment operations. When a card
is tapped or an online payment is made, Transaction Processing Systems takes charge. It
captures the payment details, executes authorization checks, facilitates fund transfers and
ensures transaction is completed. It collaborates with payment methods, financial
institutions, merchants and takes security measures to ensure seamless flow of funds. It is
the backbone of security and efficient payment, supporting everything from online shopping
to everyday card swipes.
Supermarkets use transaction processing systems to handle
sales transactions, updating inventory, and managing
customer accounts in real-time. Banks utilize these systems
for processing deposits, withdrawals, and transfers. Online
retailers like Amazon also rely on transaction processing
systems to manage orders, payments and inventory, ensuring
smooth and efficient operations.
Transaction processing system devices include point of sale
terminals, cash registers, barcode scanners, magnetic stripe
readers, and electronic fund transfer devices.
Components of TPS
TPSs commonly possess certain components such as input, storage, processing, and output.
INPUT: An input is a source document or original requests for payments or products outside
parties send to an organization’s TPS. Typically, inputs include bills, coupons, custom orders,
ATM and invoices.
PROCESSING SYSTEM: Processing refers to the analysis, evaluation, and conversion of input
to something meaningful. The processing system goes through every input and establishes a
useful output, for example, a receipt. It helps outline the input data and defines what the
outputs must be. One must remember that the processing time varies depending on the
type of TPS an organization uses.
OUTPUT: Outputs are the document a TPS generates after it processes all inputs that is, the
outcome of the transaction, for example, the receipts stored by companies in their records.
Such documents help validate transactions and offer crucial reference details for tax and
multiple official purposes.
STORAGE: A TPS’s storage component is where organizations keep their output and input
data. Storage refers to records such as ledgers, which are usually stored in databases. This
component ensures the security, accessibility, and organization of all documents for later
use.
The activities of a typical TPS include data collection, data editing, data correction, data
manipulation, data storage, and document production. Data analysis does not occur in a
TPS. This system maintains the control and balance of a company’s buying process.
Moreover, it coordinates product distribution, processes payroll and sales, manages
transactions from the payment accounts, and benefits organizations when monitoring
online purchase or sale transactions
FEATURES OF A TRANSACTION PROCESSING SYSTEMS
Controlled Access: TPSs are powerful business tools. Hence, only authorized
employees can access it. In other words, it allows only certain employees to
control and process transactions.
Connection with the external environment: TPS establishes a relationship
with the external environment by distributing information to suppliers and
customers.
Fast Response: This feature is crucial for a TPS as organizations cannot afford
to keep their customers waiting long before completing a transaction.
Inflexibility: A TPS processes all transactions in the same way, irrespective of
the time of day, user, or customer, to maximize efficiency.
Reliability: A TPS must be reliable as customers do not tolerate errors; it
must have adequate security and safety measures.
Distribution of details to other systems: A TPS produces and distributes
information to different systems. For instance, sales processing systems
provide information to general ledger systems.
TYPES OF TRANSACTION PROCESSING SYSTEMS
There are two types of transaction processing systems which are: Batch processing and Real
time processing.
BATCH PROCESSING: Batch processing can be defined as a processing system whereby
transactions are accumulated across a long time and processed all at once at a designated
time. A TPS interprets batches or sets of data by categorizing items by similarities via batch
processing. This can cause delays as it involves reviewing various data sets simultaneously.
However, the delay is acceptable as the TPS does not interpret the sets regularly. Examples
of batch processing include payroll processing of worker hours and salaries at the end of the
month
Businesses may customize the batches according to their requirement. For example, a
company may want to process its workers’ wages once every two weeks.
REAL-TIME PROCESSING: Real-Time processing systems are
processing systems where transactions are processed at the
very moment that they are created, providing feedback after
processing in real-time. Examples of real-time processing
systems include airline bookings which provide a ticket as
soon as the purchase is completed. This type of TPS
processes transactions with immediate effect, thus
preventing delays. This is an ideal technique when businesses
deal with singular transactions.
SAMPLE SCENARIO 1
Suppose David purchased a t-shirt from Jumia, an online apparel and
clothing retailer. He used his credit card to pay for the item. The
company’s TPS collected the credit card details, communicated with
his bank, and approved the purchase based on David’s account
balance.
SAMPLE SCENARIO 2
Let us say that John pays for a GOTV subscription at the beginning of every
month to watch the latest TV shows and movies. GOTV’s TPS processes all
transactions as a set as they occur simultaneously. Since the system processes
a set of transactions once every month, it requires high computing power.
Hence, a delay in processing the transactions is acceptable in this case.
ADVANTAGES OF TPS
A TPS helps organizations save funds by minimizing their need to improve their system or utilize multiple
systems to fulfill
Companies can use a TPS to process transactions accurately and quickly.
A TPS automates a significant part of a company’ revenue management and internal resources. Because of
this, employees can review transactions faster. Moreover, this gives them more time to focus on critical
thinking tasks.
It allows businesses to carry out operations in multiple segments by working remotely. This enables
organizations to explore new markets that are full of opportunities.
DISADVANTAGES OF TPS
A TPS does not have a standard format.
Companies have to incur a high set-up cost initially for TPS.
Sometimes, hardware and software have compatibility issues.
A TPS may stop working or slow down due to many transactions.
REFERENCES
Bhattacharyya R. 2024; transaction processing system
Rouse M. 2023; transaction processing system
Helfer S. 2023; transaction processing system, importance, types and examples