What Is a Transaction Processing System? Types, Components & Benefits

Transactions of all sorts have become an integral part of a common man’s daily life.

Every business and entity uses a transaction processing system, from a basic grocery store to an online portal.

You see, every exchange you make seems super easy, as all you have to do is make the payment and get your goods. However, that is not what happens in the background.

Every transaction has a set flow that follows different parameters to fulfil the expected outcome. And all of it happens in a matter of seconds, thanks to modern technology.

Several robust software programs are being used today to ensure that backend processes are flawless.

One such software is the Transaction Processing System. In this post, let us take a closer look at Transaction Processing Systems, what they are, and how they function. We will also be exploring types of TPSs and their components.

So without further ado, let’s begin, shall we?

What is a Transaction Processing System?

As the name suggests, it is a software system that manages and processes everyday transactions in various industries. Different small tasks complete a transaction.

For instance, placing an order, recording the sale, checking, updating, and managing inventories, taking payable accounts, and ensuring the smooth financial operations, are all part of a single transaction.

Now, dedicating human resources to manage all of them is neither feasible nor productive, as completing these steps manually will take a lot of time. This is where Transaction Processing Systems come into play.

These are highly optimized multi-tasking systems that take care of all the aspects involved in a transaction and complete them instantly for seamless management.

A key player in this system is the database that is being used to power the transaction processing system.

Since there are different tasks that these systems have to perform, they have different components attached to them.

Components of a Transaction Processing System

A well-functioning Transaction Processing System is built based on 4 components. These components take care of different aspects to fulfill the requirements of the users.

Here are the components that make up the entire functionality of the Transaction Processing System- 

♦ Inputs

For every transaction that you need to process, there has to be some information that you feed to the system. This information can be anything from an order, inventory information, or payment details.

♦ Processing

All the information that you feed to the system is then processed based on your requirements.

For instance, if the input is related to a customer order, the system will help you calculate the order value along with the required discounts that can be offered. All of it is done instantly.

♦ Outputs

Once your input is processed, the system shows the information generated. It can help you generate invoices, show order status, trigger notifications, and more.

The output simply depends on the task that you want to get done with your TPS.

♦ Database

This is the component where all the magic happens. All the transaction information, be it the order value, final order payment, customer information, payment details, and every other detail related to the transaction, is saved.

This helps in automating bulk processes such as payroll, maintaining sales records, etc. All these components work together like a well-oiled machine to bring the best results out of a TPS.

When all of these aspects are sorted for a transaction, you can rely on the accuracy and efficiency in data management & operations.

Types of Transaction Processing Systems: Pros & Cons

Knowing how crucial the system is, you might have become curious about what type of solutions are implemented in the form of a TPS.

There are two types of Transaction Processing Systems –

► Real-time Processing

As the name implies, it helps with processes that are real-time and require instant output.

These systems are more useful in everyday transactions for online banking, making reservations, and more.

• Pro: It takes less time to respond and is highly efficient for real-time accuracy.
• Con: Significantly more expensive to implement.

► Batch Processing

Highly recommended for grouped transactions, batch processing systems are used more in the corporate world, especially for payroll processing and generating weekly/monthly reports. Automated invoices are also a great use case.

• Pros: Highly cost-effective solution, can help in simplifying and automating build transactions.
• Con: Delayed processing & higher waiting times.

Based on the requirements of a business, one can easily choose a transaction processing system. Both of these simplify the work in different industries, however, the core objective of implementing a TPS is the same, which is adding convenience to complex processes involved in any exchange or transaction.

Benefits of Opting for a Transaction Processing System

The biggest advantage of using a TPS for your business is that it frees your manpower to do better things. Several manual tasks, such as making invoices, checking and managing inventory, and more, can be done easily through a transaction processing system, as it automates the entire process.

Other than that, here are some of the key benefits that it offers – 

• Increased Efficiency
• Reduced Errors
• Easily Scalable
• Cost-Effective Operations
• Improved Customer Service

With all these advantages that Transaction Processing Systems bring along, it is understandable that using a TPS is a vital decision.

However, it is not easy to implement as it requires a lot of expertise to build a Transaction Processing System of your own.

Check out the steps that you can use to build a process of your own.

How to Develop a Transaction Processing System for Your Business

Transaction Processing Systems are used in different industries, and a customized system is built for each industry.

Some opt for ready-made solutions and manage their day-to-day transactions, while others go the extra mile and build one from the ground up.

In case your business requires a custom solution, you can follow the given steps – 

Step 1 – Identify Your Use Cases

Developing a Transaction Processing System can be simplified and fruitful when done based on what you want it to do for you.

What is the niche of your business? What type of TPS will work best for your business? What are the tasks you will be performing on the system regularly?

Identify the answers to these questions by discussing your vision with the experts to start the process.

Step 2 – Select the Features You Require

Based on the answers and discussion, choose the features you need. Identifying the exact features can help you stay focused on why you want the system instead of cluttering your TPS with unnecessary gimmicks.

Choose the features that you would want today and in the future when you plan to scale your business. This way, you need not worry about changing the existing features and system, as it makes it future-proof.

Step 3 – Let the Experts Develop the Solution

Once you have pre-planned the system with the help of the development team, it’s time you leave the rest of the process to the experts.

Based on the requirements, these highly qualified developers will build and develop every functionality as you want it to be.

Usually, experts choose the financial tech stack for a Transaction Processing System based on the software requirements.

Step 4 – Testing & Deployment

Once the development team is through with the transaction processing system, it is delegated to the testing experts.

They ensure that the application performs as expected and there are no issues in the final build.

Several test cases are designed to check the efficiency of the system before deploying it for implementation.

With all these steps, you get yourself a customized TPS. Working on a Transaction Processing System helps your business stay streamlined and automated.

With this time-saving system, you can allocate your resources better and do more with the available bandwidth.

Functions of a Transaction Processing System That Make it Worth It!

You may be wondering how a single Transaction Processing System can help you save all the resources and make your business more efficient. Well, the answer to that lies in the functions that it offers.

Here are some primary functions that a TPS helps you with – 

1. Data Input: Entering data in different formats as required.
2. Data Processing: Processing the entered data.
3. Data Output: Generating desired output in the form of a calculation, reports, estimates, etc.
4. Data Storage: All the storage entered in the system is stored for future use and calculations.
5. Data Validation: Saved data can be used to validate information entered in the system.
6. Data Integrity: A set of rules is implemented to ensure that errors and inconsistencies in the data can be regulated easily.
7. Reports & Analytics: Your TPS can easily help you generate reports for all the data that it houses.

Other than these, several additional functions can be made available depending on your requirements and the development team you hire. It is crucial to find the right partner to get the job done.

Real-Life Use-Cases of Transaction Processing Systems

If you are thinking that having a TPS means having software that adds to the complexity of your everyday tasks, then you are mistaken.

Here are some use cases from our daily lives that can help in clearing the picture.

• ATM Management
• POS Management
• Shopping Websites
• Airline Reservations
• Stock Exchange

Transaction Processing Systems have found their way into every sector of the business realm. These highly efficient systems ensure that the volumes of transactions do not affect the quality of service and can be managed easily. Needless to say, having a Transaction Processing System in place is a game-changer for every field.

Looking for a Transaction Processing System? Nimble AppGenie Can Help!

While a TPS can be customized to fit the needs of a business, it is crucial to find a development partner who can understand your requirements and execute the plan as you want it done.

There are several Transaction Processing System developers available in the market; some offer pre-built systems, while some offer custom-built solutions.

If you want to go for a customized solution, look no further and start talking to our experts at Nimble AppGenie. With years of experience in fintech app development services, our developers understand the market needs quite well.

Which makes them the perfect companions to help you find the right fit for your business.

One of the core mistakes that people make while choosing a Transaction Processing System is that they go for one that is more complex and offers tons of unnecessary features.

While the ability of these features seems extraordinary, there’s hardly any practicality involved.

This is where Nimble AppGenie can guide you. Share your requirements with us and we will build a dedicated system tailored to your requirements and convenience.

Reach out today and let us help you out!

Conclusion

Getting your work done faster and better is a dream for every business. A Transaction Processing System not only enables you to get things done quicker, but also makes it more efficient and always available.

These scalable solutions are highly responsive and give you the best experience to finish the process easily.

Needless to say, it is a management system that helps you process things faster and keep a record of them.

It is vital to hire an experienced team of developers to help you understand the components, types, and attributes of the system and help you build the most suitable solution for your business.

Hopefully, this post gives you enough insights into what a Transaction Processing System is.

If you have any more doubts, feel free to reach out as our experts are always ready to help. That will be all for this post. Thanks for reading, good luck!

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Niketan Sharma

Niketan Sharma is the CTO of Nimble AppGenie, a prominent website and mobile app development company in the USA that is delivering excellence with a commitment to boosting business growth & maximizing customer satisfaction. He is a highly motivated individual who helps SMEs and startups grow in this dynamic market with the latest technology and innovation.