In the world of business and commerce, transactions take place on a daily basis. The needs of companies have also been evolving and increasing as more and more business models, sales and distribution channels increased. With the increase in the amount of transactions taking place, and advancements in computer hardware and software, transaction-processing systems have evolved as well.

Frist let’s examine what a transaction processing system does. “Transaction processing systems capture and process the detailed data necessary to update records about the fundamental business operations of the organization.” (Stair & Reynolds 2013, pg. 257). The system is responsible for processing various types of transactions including but not limited to sales orders, inventory updates, payroll, accounts payables and receivables. “The result of processing business transactions is that the organization’s records are update to reflect the status of the operation at the time the last processed transaction.” (Stair & Reynolds 2013, pg. 257) The results of the updated records for the organization are so that management is able to understand where the company stands at a specific point of time. Transaction processing systems works with a large amount of data and many times is integrated into an organizations other systems and share common databases. It is able to provide detailed sales reports, payroll reports and inventory status updates.

So how far have transaction processing systems evolved? Well let’s first take a look at transactions in the early 90s and take a typical bank transaction as an example. A business we’ll call Company X sells its many products and received a bunch of checks in the mail for the payment of the items. The accounts receivables clerk has to manually gather all the checks and match it up to the sales invoices and mark the invoice as paid. Since the mail only arrives once a day, the process takes place once a day. This type of processing is considered a “batch processing systems, Business transactions are accumulated over a period of time and prepared for processing as a single unit or batch.” (Stair & Reynolds, 2013, pg.258). Once the checks have all been entered into the system, the business needs to take it to the bank and make a deposit. At the bank, the teller has a terminal allowing him/her to process the deposit. An entry is made to the business account reflecting the amount of the deposit, however the funds are not yet available for use.

The teller at the bank processes many deposits on a daily basis. The teller deposit system is another form of transactions processing systems. In the 90s, the teller would accept bank client deposits, and usually after a couple of hours batch the transactions and send out the checks that he/she received during the last two hours. The checks are gathered and picked up midday and end of day so that the banks back office support can verify the check and send it off the clearinghouse for payment from the drawing bank of the check. After the banks completed the processing of the checks and received the funds from the check it would then make the funds available to the business.

In the past these types of batch transaction processing were acceptable and it was how many businesses handled the many transactions that occurs on a daily basis. However there were distinct disadvantages to the business. The business may not know that the check used to pay for the products was returned due to insufficient funds until a later date, but the products have already been sent to the buyer. Another issues that may occur is the business needs the deposited funds so that it is able to purchase additional inventory or raw material for production. The biggest problem with batch transaction processing systems is that it’s not real time, and transactions are slow to be completed.

So let’s fast forward to transaction processing in the early 2000s. Companies like amazon and eBay were fast becoming huge places where commerce takes place. People bought and sold products through these online market places at an increasing rate as the availability and penetration of high-speed Internet connection was increasing. Let’s examine Company X from earlier and assume that it has kept up with the times and created an ecommerce website to sell it many products. Company X incorporated a shopping cart software with merchant services integration allowing it to accept credit cards. Now each time a customer places an order for Company X products, the transaction is processed and the credit card payment is accepted. The inventory for the product is updated to reflect one less item, and an invoice is generated automatically. A delivery request is sent to the warehouse where the item is packaged and sent to the client. This process of immediate processing is a form of “online transaction processing, each transaction is processed immediately, without the delay of accumulating transactions into a batch.” (Stair & Reynolds, 2013 pg. 259). The obvious advantages of OLTP are that transactions are real time. Company X through its merchant service provider will be able to receive its payments usually the next business day, and if the credit card transaction did not get approved, Company X would know right away and not send out the product. With OLTP, this also means more efficiency for the company since they no longer need to have someone drive down to the local bank, nor do they need a data entry clerk to enter the sales invoices and reflect the updated inventory. All these processes can be updated automatically. With OLTP the business is able to evaluate and process the data gathered more quickly and know exactly what inventory is low and needs to be replenished.

It is now 2013, and transaction-processing systems have again evolved. Company X has again evolved and adapted to the new technologies. The company saw the benefits of incorporating its transactions processing system into the ERP System. Company X systems are now fully integrated from end to end. Starting with the initial purchase of inventory. Company X now places orders through a B2B process with its suppliers. An order is placed through the ERP system and generates a purchase order to the supplier. When the order is received by the warehouse at Company X, the order is accepted and added to the inventory which generated a messages to accounts payable to process payments to the supplier. In addition the items received automatically becomes available for sale on the company ecommerce website. The sales cycle begins and Company X try’s to sell its products online and repeat the process. The business challenges in transaction processing according to redbooks.ibm.com article is the need to react quickly to competition and new business opportunity, as well as control risks and the ability to respond to regulatory scrutiny. TPS will continue to evolve and based on the needs of the business and commerce world, the system will continue to grow and improve.

Stair, R. M., & Reynolds, G. W. (2014). Fundamentals of information systems (7th ed.). Boston, MA: Course Technology

Kooijmans, A, Ramos, E, De Greef, N, Delhumeau, D, Dillenberger, D, Potter, H, and Williams, N. (2012). Transactions Processing: Past, Present, and Future. Redbooks IBM. Retrieved from: http://www.redbooks.ibm.com