What Is an Online Transaction Processing (OLTP) System?

By Indeed Editorial Team

Published June 6, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Online businesses rely on quick and effective transactions to help customers have a good shopping experience. One way businesses can ensure this is to use an online transaction processing (OLTP) system that helps process, track, and manage transactions. Learning more about this system can help you decide whether to implement one at work.

In this article, we explain what online transaction processing is, discuss its benefits and challenges, compare it with online analytical processing (OLAP), and give examples of different online transaction processing systems.

What is OLTP?

OLTP, or online transaction processing, is a software program that supports transaction processes online to ensure businesses and individuals can complete transactions quickly, efficiently, and accurately. Businesses may use online transaction processing for online banking, shopping, and point-of-sale terminals.

Related: What Are Accounting Transactions? (Definition and Examples)

Benefits of online transaction processing systems

Understanding the benefits of using an online transaction processing system can help you decide whether to implement one at work. Here are some of the common advantages:

Accessibility

Online transaction processing systems are always available. This increases accessibility as customers from any time zone can access an online business whenever it's convenient for them. To maintain this accessibility, businesses perform frequent backups. Too many customers at once may overload the system, causing downtimes that can lead to a loss of sales.

Indexed data

Online transaction processing systems collect and index all incoming data. The system may store information about customers' transactions, such as how much they spent, what they bought, and where they live. Having this indexed data allows businesses to get to know their customers better so they can target advertisements and promotions to them.

Related: Everything You Need to Know About Data Science as a Career

Speed

These systems typically offer quicker transactional processing speeds. This makes online shopping and payment more efficient for customers, encouraging them to make future purchases. Businesses can even connect their online transaction processing systems to their point-of-sale systems to increase the speed of transactions in store.

Related: 14 Essential Skills for Great Cashiers

Concurrence

Concurrence means that multiple users can't manipulate the same data simultaneously. This can minimize errors and fraud as it prevents two or more users from completing the same transaction at the same time. The transaction can't complete until all its database changes are permanent. The system uses simple queries that align with each other to complete day-to-day operations for businesses and can protect the data in each transaction.

Atomicity

Atomicity means that if one step of the transaction process fails, the transaction cancels. Atomicity in online transaction processing systems can help protect the integrity of online transactions with credit cards or other payment systems. For example, if a user attempts to purchase an item on an e-commerce site but an internet outage interrupts the request, the transaction does not complete. This may also ensure that transactions on the online transaction processing system are consistent, quick, and help maintain security.

Challenges of online transaction processing

While there are plenty of benefits of online transaction processing systems, there are some challenges as well, such as the following:

Initial costs are high

An online transaction processing system is unique to a business and designed to match its needs and customer base. As developers and designers are creating new systems, it can be expensive to develop and install. Maintenance of these systems also typically requires specialized personnel, which can be costly. These costs are typically worth it to businesses as their systems tend to increase sales and help them attract new customers.

Unscheduled downtime

If your online transaction processing system can't handle all the customers, it may crash temporarily. This can interrupt customers in the middle of checking out or disrupt their shopping, discouraging them from finalizing their purchase when your system is working again. These systems can also go down due to other reasons, such as hardware failure, data corruption, security issues, or network outages. As your system is likely operating continuously, you may not even notice this disruption right away. Hiring an IT team that's available all day and night can help minimize any unscheduled downtime.

OLTP vs. OLAP

OLTP systems and OLAP systems are similar but share some key differences. An online analytical processing system analyzes historical data from online transaction processing systems using more complex queries. Here are some of the key differences between these two systems:

  • Volume of transactions: Online transaction processing systems typically process larger volumes of small transactions, whereas analytical processing system systems handle large sets of data with complex queries. An example of a transactional process system would be customers using an online shopping application that has access to all their previous transactions, from the first to the most recent transaction.

  • Processing speeds: Online transaction processing systems typically process transactions far more quickly than analytical processing systems. Online transaction processing systems typically respond in milliseconds, whereas analytical processing systems can take hours, days, or weeks, depending on the size and complexity of their queries.

  • Design: Both systems share similarities, but their designs are more specific. Developers design online transaction processing systems for more industry-specific purposes, such as banking or retail, whereas they design analytical processing systems for subject-specific purposes, such as sales or inventory management.

  • Overall purpose: Both systems serve different functions for organizations. Online transaction processing systems help support the daily operations of a business or organization, while online analytical processing systems help solve complex issues and discover helpful insights.

  • Backup intervals: Online transaction processing systems require frequent backups to maintain their integrity, whereas online analytical processing systems host a database to support the retrieval of archived versions or information which requires less frequent backups.

  • Storage space: Typically, online transaction processing systems require less system memory to store data, whereas online analytical processing systems need more space and greater processing capabilities.

  • Data source: Online transaction processing systems gather data directly from transactions completed within the system. Online analytical processing systems gather aggregated data from those same transactions.

  • Queries: Online transaction processing systems handle simple queries for faster speeds, whereas analytical processing systems handle more advanced queries for specific information.

  • Data timeframe: Online transaction processing systems typically display current data or data specific to a certain period, whereas analytical processing systems typically display only historical data for a more analytical viewpoint.

Related: Top Skills for Software Developer

Examples of online transaction processing

To help you understand online transaction processing better, consider the following examples of its different uses:

Example 1

Here's an example of using an online transaction processing system with a business bank account:

Two business partners share access to a joint bank account for their company. Each partner attempts to order the same supplies from the same website on the same day using the company's debit card. The online transaction processing system processes this transaction request, but since both parties are accessing the same system simultaneously, the system disallows the transaction because the pair violated the concurrence rule that governs it, which says multiple parties can't manipulate data simultaneously. Here, only one person can use the debit card for the same transaction at the same time.

Example 2

Here's an example of the use of an online transaction processing system for a retail sales transaction:

A retailer uses a point-of-sale system to complete transactions online and in store. The system processes each transaction and creates a database of the information for each transaction. It then sends a request to the customer's credit card company, which approves the charge to the card. The system records payment and deducts one item from the store's inventory. This transaction follows all the rules of a successful online transaction processing system and helps the business process payments quicker and manage its inventory more efficiently online and in store.

Related: How to Get into Sales in 5 Steps (With Tips and FAQs)

Example 3

Here's an example of an online transaction processing system used during an ATM transaction:

A couple has a joint account at their bank and each attempts to withdraw the full balance of $5,000 on the same day, at the same time in different locations. The online transaction processing system fails the transaction for violating the concurrence rule. The couple then tries withdrawing money at separate times from the same bank account for the transaction to process successfully. Otherwise, the bank might provide the full balance for each party, creating a deficit of $5,000 in the account.

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