M&S to join the credit card war

MARKS & Spencer is poised to launch a nationwide credit card scheme that will make it one of the biggest issuers in Britain and double its profits from financial services within four years. The move, likely to be unveiled in May, follows a successful trial at nine stores in South Wales. M&S is saying nothing yet about the outcome of the pilot scheme, which began in October.

But reliable sources say the trial demonstrated that there is a huge appetite for an M&S card that can be used like an ordinary credit card with other retailers. The card also gives M&S shoppers loyalty rewards. M&S has five million store cards in circulation. Of those, about 3.5 million accounts are used regularly.

The store cards allow customers to pay for goods from M&S by charging the cost to an account that can be paid off straight away or over several months. It is expected that most of the five million customers will be offered a new all-purpose credit card that can be used just like any Visa or MasterCard.

The move could quickly propel M&S to seventh position in the UK credit card market after the leaders, Barclaycard, RBS/NatWest, HSBC, MBNA, Lloyds TSB and HBoS. Analysts estimate that within four years M&S's financial services arm, whose director is Laurel Powers-Freeling, could double its profits to £170 million.

The new card is likely to offer shoppers incentives to spend at M&S stores. In the South Wales trial, one group of customers has a combined credit card and loyalty card. For every £100 spent on the card in M&S, the customer receives £1 credit to spend in the group's stores.

For every £100 spent with another retailer, the shopper earns 50p credit with M&S. It is thought likely that that a nationwide card will work in a similar way. M&S's financial services operation, launched in 1985, has seen profits dip after the company's decision to allow customers to use 'third party' credit cards such as Visa and MasterCard.

Previously, only Marks & Spencer's own store card was accepted. The change came into effect in April 2000 as management tried to shore up the stores' sales. Financial services profits peaked in 1999/ 2000 at £115.8 million, though they dipped to £84.2 million in 200 1/2002.

Results in May are expected to show a fall to about £80 million for the current year, and the 12 months to next March could see a further reduction because of the cost of launching the new credit card - possibly as much as £60 million.