What is transaction processing?

Transaction processing is a computational style generally performed by server computers, which supports interactive applications (apps). Transaction processing is also known as information processing, which divides the work into indivisible and individual operations called transactions. The transaction is a set of tasks; a single task is considered as the minimum processing unit that cannot be divided again.

In general, transaction processing is an action or set of actions that is performed by an application program or a user, which either update or read information. For example, transferring money between two bank accounts.

What is transaction processing system?

A transaction processing system (TPS) is an information system that stores, collects, retrieves, and modifies the transaction data of an enterprise. This system provides a predictable response time for the request. It supports the business by allowing the application program to develop code and shields the application program from transaction management details like,

  • Data sharing.
  • Data integrity.
  • Managing concurrent transaction processing
  • Managing priority of transaction.

ACID criteria for transaction processing

In transaction processing, the key transaction properties are referred to as ACID. ACID is defined as,


The components of each transaction are atomic (indivisible). The transaction should be either failure or a success.


Consistency makes sure that all the illegal (database with negative value) transactions are rejected and the integrity(set of operating rules) of the database is maintained.


Isolation makes sure that all the transactions are isolated and maintained without affecting other transactions.


The durability makes sure that all the data will be saved after completing the transaction. Durability saves the data, even there is a failure of hardware after the transaction.

Transaction processing types

The transaction processing is divided into two different types namely,

  • Batch processing.
  • Real time processing.

Batch processing

In batch processing, it is simple to collect and process the transaction. Information or data will be collected and stored as a batch; it will not be processed immediately. Batch processing is mostly used by enterprises that process huge data with limited resources.

Example: Generation of bills, transactions made using a credit card.


  • Reduces the cost of processing.


  • Data collection requires more time.
  • Only identical data can be processed in a single batch.

Real time processing

Real-time processing is an immediate data processing and the transactions are confirmed instantly. The database is updated with all the carried out transactions. This involves multiple users, who perform transactions simultaneously (and change the data). The real-time update will be possible when there is sufficient data transmission speed and bandwidth.

Example: Online shopping, Automated Teller Machine(ATM).


  • Database gets updated instantly.
  • Can adapt to increased volume of data.


  • Standardization is more difficult.
  • Security is more critical.

Database used in transaction processing

A database is a collection of organized data. The database stores the data in a structured format. The database used in transaction processing is constructed using any of the following:

Hierarchical database

The data are organized at various levels. It has a top-to-bottom structure with branches and nodes; whereas, every child node might have branches and be linked to top-level (parent) nodes.

Network database

The data are organized in the form of a graph consisting of vertices and edges.

Relational database

The data are organized in a set of related tables. These related tables are used to combine and present the data effectively.

Characteristics of transaction processing system

The following are the major characteristics of the transaction processing system

  • Capable of providing prompt response.
  • Reliable.
  • Maintains the operations of the organization despite failure.
  • Highly scalable.

Features of transaction processing system

The following are the important features of TPS:

Data integrity

The TPS should maintain the same method for all transactions processed and the system should be designed to effectively protect data and overcome any hardware/ software issues.

Easy to use

The TPS needs to be user-friendly which encourages the use and decreases the error in the input data. The structure of the system needs to be easily understandable and guide the users during data entry.


In TPS, each transaction result needs to be efficient and timely where efficiency depends upon the total transaction processed at a certain time.

Functions of transaction processing system

The following are the functions of TPS:

  • Storage function: The process of storing the data in database and files. It includes storage, access, and classification of stored data.
  • Input function: This function includes the securing data on the source document, entering input data onto the system and also validation of data.
  • Output function: The function includes production of transaction report either as a soft copy or hard copy.
  • Processing function: The function includes data transformation, calculation and computation.


  • Available for both real time and batch processing.
  • It is cost-effective.
  • Improves customer satisfaction and service.
  • Minimizes occurrence of error.
  • It is user friendly.
  • It maintains a stable database, which reduces the risk of losing the customer/user data during network failure.


  • User must have a good network connection in order to access the service.
  • Lack of standard formats.
  • Difficult to handle when the business cannot utilize it.
  • Expensive to install and set up.
  • Requires specialized personnel in order to maintain.
  • Installation can be disturbed by incompatibility of hardware and software.

Context and Applications

This topic is important for postgraduate and undergraduate courses, particularly for, Bachelors in Computer Science Engineering and Associate of Science in Computer Science.

Practice Problems

Question 1: __ is a set of tasks.

  1. TPS
  2. Network
  3. Transaction
  4. None of the above

Answer: Option c is correct.

Explanation: Transaction is a set of tasks; however, a single task is considered as the minimum processing unit which cannot be divided again.

Question 2: ___ is used to maintain the organization's operation.

  1. Controlled processing
  2. Process function
  3. Storage function
  4. Batch processing

Answer: Option a is correct.

Explanation: To maintain the operations of the organization, controlled processing is used. The system can be accessed only by authorized staff members and employees at a time.

Question 3: Select the database model used in transaction processing.

  1. Hierarchical database
  2. Network database
  3. Relational database
  4. All the above

Answer: Option d is correct.

Explanation: The database in transaction processing can be constructed using the network, relational or hierarchical database.

Question 4: Transaction management is used to enable ____.

  1. Data integrity
  2. Data sharing
  3. Processing
  4. Transaction

Answer: Option b is correct.

Explanation: TPS is used to shield the application program from the transaction management details like ensuring data integrity, enabling data sharing, transaction priority management, and manage concurrent transaction processing.

Question 5: Real-time processing and batch processing are the two types of transaction processing. State true or false.

  1. True
  2. False
  3. Maybe true
  4. None of the above

Answer: Option a is correct.

Explanation: Transaction processing is a computational style that is performed by various computers and supports interactive apps. The two types of transaction processing are batch and real-time processing.

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