<PAGE>
                               UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549


                                  FORM 10-Q 
                                                                         

   [X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934
        For the quarterly period ended June 30, 1997

   [ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934


                         Commission file Number 1-10993


                          SPS TRANSACTION SERVICES, INC.
             (Exact name of Registrant as specified in its charter)

              Delaware                                         36-3798295
       (State of incorporation)                            (I.R.S. Employer
                                                          Identification No.)

    2500 Lake Cook Road, Riverwoods, IL                           60015
  (Address of principal executive offices)                     (Zip Code)

     Registrant's telephone number, including area code:   (847) 405-3400


Indicate by check mark whether the Registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to such 
filing requirements for the past 90 days.   Yes [X]  No [  ]

As of July 31, 1997, the Registrant had 27,215,136 shares of common stock, 
$0.01 par value, outstanding.


                                                            Page 1 of 17 pages




















<PAGE>

PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements


SPS TRANSACTION SERVICES, INC.

CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
                                                     June 30,      December 31,
                                                       1997            1996
                                                   ------------    ------------
                                                    (Unaudited) 
<S>                                                <C>             <C>
ASSETS:
  Cash and due from banks                            $   25,112     $   15,205
  Investments held to maturity - at amortized cost       49,507         41,675
  Credit card loans                                   1,338,600      1,637,507
  Allowance for loan losses                             (79,120)       (88,397)
                                                     ----------     ----------
    Credit card loans, net                            1,259,480      1,549,110
  Accrued interest receivable                            20,349         21,141
  Accounts receivable                                    32,786         42,202
  Due from affiliated companies                           7,495          9,900
  Amounts due from asset securitizations                 56,915             --
  Premises and equipment, net                            26,732         25,294
  Deferred income taxes                                  33,463         38,266
  Prepaid expenses and other assets                      15,007         17,992
                                                     ----------     ----------
TOTAL ASSETS                                         $1,526,846     $1,760,785
                                                     ==========     ==========
LIABILITIES:
  Deposits:
    Noninterest-bearing                              $    3,884     $    9,012
    Interest-bearing                                    490,180        454,423
                                                     ----------     ----------
  Total deposits                                        494,064        463,435
  Accounts payable, accrued expenses and other           48,817         50,019
  Income taxes payable                                    8,034         17,756
  Due to affiliated companies                           712,194        982,547
  Accrued recourse obligation                            22,636         22,636
                                                     ----------     ----------
    Total liabilities                                 1,285,745      1,536,393
                                                     ----------     ----------
STOCKHOLDERS' EQUITY:
  Preferred stock, $1.00 par value, 100,000
    shares authorized; none issued or outstanding
  Common stock, $.01 par value, 40,000,000 and 
    40,000,000 shares authorized; 27,262,894 and    
    27,242,207 shares issued; 27,212,508 and 
    27,187,462 shares outstanding at June 30, 1997
    and December 31, 1996, respectively                     273            272
  Capital in excess of par value                         81,381         81,096
  Retained earnings                                     160,720        144,345
  Common stock held in treasury, at cost, $.01
    par value, 50,386 and 54,745 shares at June 30,
    1997 and December 31, 1996, respectively             (1,242)        (1,312)
  Stock compensation plan                                   483            453
  Employee stock benefit trust                             (483)          (413)
  Unearned stock compensation                               (31)           (49)
                                                     ----------     ----------
    Total stockholders' equity                          241,101        224,392
                                                     ----------     ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $1,526,846     $1,760,785
                                                     ==========     ==========
<FN>
See notes to unaudited consolidated financial statements.
                                          
</TABLE>









                                         2
<PAGE>
SPS TRANSACTION SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>

                                     Three Months Ended       Six Months Ended
                                          June 30,                June 30,
                                    ------------------     -------------------
                                     1997        1996        1997       1996 
                                    -------    -------     --------   --------
                                        (Unaudited)            (Unaudited)
<S>                                 <C>        <C>         <C>        <C>
Processing and service revenues     $67,264    $64,766     $142,573   $139,096
Merchant discount revenue             3,678      7,375        6,816     15,219
                                    -------    -------     --------   --------
                                     70,942     72,141      149,389    154,315

Interest revenue                     62,401     56,194      126,477    112,146
Interest expense                     19,444     18,943       39,826     41,586
                                    -------    -------     --------   --------
  Net interest income                42,957     37,251       86,651     70,560
Provision for loan losses            26,082     26,096       57,793     52,568
                                    -------    -------     --------   --------
  Net credit income                  16,875     11,155       28,858     17,992
                                    -------    -------     --------   --------

Net operating revenues               87,817     83,296      178,247    172,307

Salaries and employee benefits       28,274     24,471       57,797     48,671
Processing and service expenses      24,369     26,836       52,696     53,507
Other expenses                       20,543     21,353       41,084     41,694
                                    -------    -------     --------   --------
  Total operating expenses           73,186     72,660      151,577    143,872
                                    -------    -------     --------   --------

Income before income taxes           14,631     10,636       26,670     28,435
Income tax expense                    5,647      4,043       10,295     10,807
                                    -------    -------     --------   --------
Net income                          $ 8,984    $ 6,593     $ 16,375   $ 17,628
                                    =======    =======     ========   ========

Net income per common share         $  0.33    $  0.24     $   0.60   $   0.65
                                    =======    =======     ========   ========

Weighted average common shares 
  outstanding                        27,209     27,183       27,203     27,150

<FN>
See notes to unaudited consolidated financial statements.
</TABLE>
















<PAGE>                                          3
SPS TRANSACTION SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
                                                            Six Months Ended
                                                                June 30,
                                                         ----------------------
                                                           1997          1996
                                                         --------     ---------
                                                              (Unaudited)
<S>                                                      <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                             $ 16,375     $ 17,628
  Adjustments to reconcile net income to
    net cash flows from operating activities                                  
  Depreciation and amortization                             6,735        7,046
  Imputed interest on notes payable                            --           15
  Provision for loan losses                                57,793       52,568
  Deferred income taxes                                     4,803         (231)
  (Increase) decrease in operating assets:
  Cash and due from banks - restricted                         --       29,000 
  Amounts due from affiliated companies                     2,405        1,215 
  Accrued interest receivable and accounts receivable      10,208        1,445 
  Amounts due from asset securitizations                  (56,915)          --
  Prepaid expenses and other assets                         2,392        1,373 
  Increase (decrease) in operating liabilities:
  Accounts payable, accrued expenses and other               (963)      (5,298)
  Income taxes payable                                     (9,722)      (8,504)
  Due to affiliated companies                               5,069        6,339
  Accrued recourse obligation                                  --         (505)
                                                         --------     --------
    Net cash from operating activities                     38,180      102,091 
                                                         --------     --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Investments held to maturity - purchases               (105,932)    (181,564)
  Investments held to maturity - maturities                98,100      176,600
  Net principal collected on credit card portfolios       228,904        6,503
  Proceeds from sale of credit card loan                       --      138,861
  Purchases of premises and equipment, net                 (4,647)      (4,432)
                                                         --------     --------
    Net cash from investing activities                    216,425      135,968 
                                                         --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net decrease in noninterest-bearing deposits             (5,128)      (7,368)
  Net increase in interest-bearing deposits                35,757       39,595
  Due to affiliated companies                            (275,422)    (269,122)
  Repayment of notes payable                                   --       (2,110)
  Proceeds from exercise of stock options                      25          590
  Change in treasury stock, net                                70          925
                                                         --------     --------
    Net cash from financing activities                   (244,698)    (237,490)
                                                         --------     --------

Increase in cash and due from banks                         9,907          569
Cash and due from banks, beginning of period               15,205        8,879
                                                         --------     --------
Cash and due from banks, end of period                   $ 25,112     $  9,448
                                                         ========     ========


<FN>
See notes to unaudited consolidated financial statements.
</TABLE>













                                         4
<PAGE>
SPS TRANSACTION SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
-------------------------------------------------------------------------------

A.  ORGANIZATION AND BASIS OF PRESENTATION

  The consolidated financial statements include the accounts of SPS Transaction 
Services, Inc. (the "Company") and its subsidiaries. The Company is a 73.5% 
majority owned subsidiary of NOVUS Credit Services Inc., which in turn is a 
wholly owned, direct subsidiary of Morgan Stanley, Dean Witter, Discover & Co. 
("MSDWD").  

  On May 31, 1997, Morgan Stanley Group Inc. was merged with and into Dean 
Witter, Discover & Co.  At that time Dean Witter, Discover & Co. changed its 
corporate name to Morgan Stanley, Dean Witter, Discover & Co.
  
  The Company provides a range of technology outsourcing services including the 
processing of credit and debit card transactions, consumer private label credit 
card programs, commercial account processing services, and call center customer 
service activities in the United States.  SPS Payment Systems, Inc. ("SPS"), a 
wholly owned subsidiary of the Company, is incorporated in the State of 
Delaware.  Hurley State Bank ("HSB"), a wholly owned subsidiary of the Company, 
is chartered as a bank by the State of South Dakota and is a member of the 
Federal Deposit Insurance Corporation.

  The Consolidated Balance Sheet as of June 30, 1997, and the Consolidated 
Statements of Income for the three and six months ended June 30, 1997 and 1996, 
and the Consolidated Statements of Cash Flows for the six months ended June 30, 
1997 and 1996 are unaudited; however, in the opinion of management, all 
adjustments, consisting only of normal recurring accruals necessary for fair 
presentation, have been reflected.  All material intercompany balances and 
transactions have been eliminated.  Certain reclassifications have been made to 
prior year amounts to conform to current presentation.  The preparation of the 
consolidated financial statements in accordance with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect the financial statements and related disclosures. Management 
believes that the estimates utilized in the preparation of the consolidated 
financial statements are prudent and reasonable.  Actual results could differ 
from these estimates.

  The consolidated financial statements should be read in conjunction with the 
consolidated financial statements and notes thereto included in the Company's 
1996 Annual Report to Stockholders and Annual Report on Form 10-K.  The results 
of operations for the interim periods should not be considered indicative of 
results to be expected for the full year.


B.  RECENT ACCOUNTING PRONOUNCEMENTS 

  As of January 1, 1997, the Company adopted Statement of Financial Accounting 
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of 
Financial Assets and Extinguishments of Liabilities," which is effective for 
transfers of financial assets made after December 31, 1996, except for certain 
financial assets for which the effective date has been delayed for one year.  
SFAS No. 125 provides financial reporting standards for the derecognition and 
recognition of financial assets, including the distinction between transfers of 
financial assets which should be recorded as sales and those which should be 
recorded as secured borrowings.  The adoption of the enacted provisions of SFAS 
No. 125 had no material effect on the Company's financial position or results 
of operations.






                                         5
<PAGE>
  The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings 
per Share" ("EPS"), effective for periods ending after December 15, 1997, with 
restatement required for all prior periods.  SFAS No. 128 maintains the current 
EPS category of net income per common share with "basic" EPS, which similarly 
reflects no dilution from common stock equivalents, and requires "diluted" EPS 
which reflects dilution from common stock equivalents based on the average 
price per share of the Company's common stock during the period.  The adoption 
of SFAS No. 128 would not have had, and is not expected to have, a material 
effect on the Company's EPS calculation.

  In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, 
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments 
of an Enterprise and Related Information."  These statements, which are 
effective for fiscal years beginning after December 15, 1997, establish 
standards for the reporting and display of comprehensive income and disclosure 
requirements related to segments.

C.  ALLOWANCE FOR LOAN LOSSES AND ACCRUED RECOURSE OBLIGATION

  The changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>

                                      Three Months Ended     Six Months Ended
                                           June 30,              June 30,
                                      ------------------    ------------------
                                        (In Thousands)        (In Thousands)
                                        1997       1996       1997       1996
                                      -------    -------    -------    -------
<S>                                   <C>        <C>        <C>        <C>
Balance, beginning of period          $84,394    $66,252    $88,397    $63,704
Additions:
  Provision for loan losses            26,082     26,096     57,793     52,568

Deductions:
  Charge-offs                         (37,406)   (32,335)   (78,767)   (62,981)
  Less: recoveries                      6,050      5,291     11,697     12,013
                                      -------    -------    -------    -------
  Net charge-offs                     (31,356)   (27,044)   (67,070)   (50,968)
                                      -------    -------    -------    -------
Balance, end of period                $79,120    $65,304    $79,120    $65,304
                                      =======    =======    =======    =======
</TABLE>
  
  At June 30, 1997, there were $71.9 million in loans past due 30 days through 
89 days, and $54.1 million in loans past due 90 days through 179 days.

  Credit card loans were reduced by $580.0 million at both June 30, 1997 and 
1996, due to the sale with limited recourse of such loans through 
securitization transactions.  The accrued recourse obligation related to 
securitized loans was $22.6 million and $26.6 million at June 30, 1997 and 
1996, respectively.






















                                         6
<PAGE>
 Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND  
RESULTS OF OPERATIONS


RESULTS OF OPERATIONS  

  The Company's net operating revenues consist of processing and service 
revenues, merchant discount revenue and net credit income, which are derived as 
a result of its four principal business services: Network Transaction Services, 
TeleServices, Commercial Accounts Processing and Consumer Credit Card Services.

  Processing and service revenues consist of four components (as described 
below): Transaction processing services, Managed programs, HSB programs and 
Servicing fees on securitized loans.

  Transaction processing services include revenues received as a result of 
TeleServices and Network Transaction Services such as call center processing,
electronic transaction processing, the sale and servicing of point-of-sale 
terminals, and a System Access Agreement with NOVUS Services, Inc., an
affiliated company.  Revenues from Network Transaction Services typically are
based on the number of electronic point-of-sale transactions processed rather
than the dollar transaction amount. Revenues from TeleServices typically are
based upon the number, type and length of customer contacts processed through 
service activities such as technical help-desk inquiries, customer billing
inquiries, dispatch services and catalog order processing.

  Managed programs includes revenues received as a result of Commercial Account 
Processing and those Consumer Credit Card Services which the Company 
administers, but for which it does not act as the card issuer or own the credit 
card loans. Managed Program revenues are derived from fees based on the volume 
of the services provided and on services provided in the administration of 
credit life insurance programs.

  HSB programs refers to those Consumer Credit Card Services for which the 
Company issues the credit card on behalf of the client and owns the credit card 
loans that are generated through the use of the card. The revenues derived from 
the administration of HSB programs that are included as part of processing and 
service revenues primarily consist of late fees.

  Servicing fees on securitized loans are revenues derived from credit card 
loans that have been sold to investors through asset securitizations. Such 
revenues are the result of the fees earned for servicing the underlying credit 
card accounts. Loan securitizations have the effect of converting portions of 
net credit income, merchant discount revenue and credit card fees to a 
component of processing and service revenues for the credit card accounts that 
are securitized.

  Merchant discount revenue is derived from the Company's owned Consumer Credit 
Card Services, portions of which are currently deferred and amortized to 
interest revenue.  Generally, credit card sales are subject to a discount 
charged to the merchant based upon contractual percentages.  This percentage 
varies by portfolio and by the type of credit plan offered.  

  Interest revenue represents finance charges derived from owned Consumer 
Credit Card Services, investment interest and the amortization of deferred 
merchant discount revenue. Net credit income is calculated by subtracting 
interest expense and the provision for loan losses from interest revenue.











                                         7
<PAGE>
Recent Events

  On May 31, 1997, Morgan Stanley Group Inc. was merged with and into Dean 
Witter, Discover & Co.  At that time Dean Witter, Discover & Co. changed its 
corporate name to Morgan Stanley, Dean Witter, Discover & Co.

  On May 9, 1997, the Company announced that Thomas C. Schneider, 59, has been 
elected Chairman of the Board of Directors. Mr. Schneider succeeds Philip J. 
Purcell, Chairman and CEO of our majority-owner, MSDWD.  Mr. Purcell will 
remain on the Company's Board.  Mr. Schneider has served as Chief Financial 
Officer and a Director of the Company since its formation in 1992. He will 
continue in his role as CFO. Prior to the MSDWD merger, he was Executive Vice 
President and Chief Financial Officer of Dean Witter, Discover & Co. As a 
result of the MSDWD merger, Mr. Schneider is the Chief Strategic and 
Administrative Officer of MSDWD.

  Robert L. Wieseneck, SPS President and Chief Executive Officer, also 
announced changes in responsibilities for several of the Company's officers 
designed to define business unit accountability.

  Robert W. Archer, formerly Senior Vice President, Sales, was named Senior 
Vice President, Sales and Operations and will assume added management 
responsibility for all SPS operations centers.

  Richard F. Atkinson, formerly Senior Vice President, Operations, was named 
Senior Vice President, Consumer Credit Card Services and Serge Uccetta, 
formerly Vice President, Card Services, was named Vice President, Commercial 
Accounts Services, giving each accountability for the performance of those 
respective businesses.

  David J. Peterson was promoted to the new position, Senior Vice President, 
Commercial Technology Services. He will add responsibility for TeleServices and 
the Company's subsidiaries Med-Link Technologies, Inc. and Ruf Corporation to 
his current Network Transaction Services duties. 

  On July 15, 1997, the Company announced receipt of notice of termination of 
its System Access Agreement with NOVUS Services, Inc., an affiliate company.  
The agreement will continue under current terms until July 31, 2000. For the 
years ended December 31, 1995 and 1996, and for the six months ended June 30, 
1997, fees received under this licensing agreement have totaled $8.0 million, 
$8.0 million and $4.0 million, respectively. The Company believes that
termination of this agreement on July 31, 2000 will not have a material adverse
effect on the Company's financial position or results of operations.


 





















                                      
                                         8
<PAGE>
The following table presents, for the periods indicated, the percentage 
relationship that certain statement of income items bear to net operating 
revenues and the period-to-period percentage dollar increase or decrease in 
each item.
<TABLE>
<CAPTION>      
                 
                                    Three Months Ended      Six Months Ended
                                         June 30,               June 30,
                                     Period-to-period       Period-to-Period
                                   --------------------   --------------------
                                    1997   1996  Change    1997   1996  Change
                                   ------ ------ ------   ------ ------ ------
<S>                                <C>    <C>    <C>      <C>    <C>    <C>
  NET OPERATING REVENUES:
  Processing and service revenues   76.6%  77.8%   3.9%    80.0%  80.7%   2.5%
  Merchant discount revenue          4.2    8.8  (50.1)     3.8    8.9  (55.2)
  Net credit income                 19.2   13.4   51.3     16.2   10.4   60.4
                                   -----  -----           -----  -----  
                                   100.0  100.0    5.4    100.0  100.0    3.4
  OPERATING EXPENSES:
  Salaries and employee benefits    32.2   29.4   15.5     32.4   28.2   18.8
  Processing and service expenses   27.7   32.2   (9.2)    29.6   31.1   (1.5)      
  Other expenses                    23.4   25.6   (3.8)    23.0   24.2   (1.5)                                        
                                   -----  -----           -----  -----  
                                    83.3   87.2    0.7     85.0   83.5    5.4

  Income before income taxes        16.7   12.8   37.6     15.0   16.5   (6.2)
  Income tax expense                 6.5    4.9   39.7      5.8    6.3   (4.7)
                                   -----  -----           -----  -----  

  Net income                        10.2%   7.9%  36.3%    9.2%  10.2%  (7.1)%
                                   =====  =====           =====  =====  
</TABLE>

  Net income for the three months ended June 30, 1997 was $9.0 million, an 
increase of $2.4 million, or 36.3%, over the same period a year ago.  Net 
income per common share for the three month period was $0.33, compared to $0.24 
in the prior year's second quarter.  Net income for the six months ended June 
30, 1997 was $16.4 million, a decrease of $1.3 million, or 7.1%, over the same 
period a year ago.  Net income per common share for the six month period was 
$0.60, compared to $0.65 for the same period a year ago.

  Net operating revenues for the second quarter of 1997 grew to $87.8 million, 
an increase of 5.4% over the same period last year.  Net operating revenues for 
the six months ended June 30, 1997, were $178.2 million, an increase of 3.4% 
over the same period last year.  The increase in net operating revenues for 
both periods resulted primarily from an increase in net credit income and 
processing and service revenues partially offset by a decrease in merchant 
discount revenue. 

  Processing and service revenues increased 3.9% to $67.3 million for the three 
months ended June 30, 1997, as compared to $64.8 million for the same period 
last year.  For the six months ended June 30, 1997, processing and service 
revenues increased 2.5% to $142.6 million as compared to $139.1 million for the 
same period last year.  Processing and service revenues represented 76.6% and 
77.8% of net operating revenues for the three months ended June 30, 1997 and 
1996, respectively.  For the six months ended June 30, 1997 and 1996, 
processing and service revenues represented 80.0% and 80.7% of net operating 
revenues, respectively.








                     


                                          9
<PAGE>
Processing and service revenues consisted of the following:
<TABLE>
<CAPTION>

                                      Three Months Ended     Six Months Ended
                                            June 30,              June 30,
                                      ------------------    -------------------
                                         (In Thousands)        (In Thousands)
                                        1997       1996        1997       1996 
                                      -------    -------    --------   --------
                                         (Unaudited)             (Unaudited)
  <S>                                 <C>        <C>         <C>        <C>
  Transaction processing services     $24,169    $20,655     $48,631    $42,089
  Managed Programs                     22,328     22,117      45,723     45,238
  HSB Programs                         11,576     11,561      25,595     23,201
  Servicing fees on securitized loans   9,191     10,433      22,624     28,568
                                      -------    -------    --------   --------
                                      $67,264    $64,766    $142,573   $139,096
                                      =======    =======    ========   ========
</TABLE>

SUPPLEMENTAL INFORMATION
Components of servicing fees on securitized loans:
<TABLE>
<CAPTION>
                                      Three Months Ended     Six Months Ended
                                            June 30,              June 30,
                                      ------------------    -------------------
                                         (In Thousands)        (In Thousands)
                                        1997       1996        1997       1996 
                                      -------    -------    --------   --------
                                         (Unaudited)             (Unaudited)
  <S>                                 <C>        <C>         <C>        <C>
  Processing and service revenues     $3,644     $3,400      $8,173     $7,034
  Merchant discount revenue              824        906       1,945      1,972
  Interest revenue                    25,760     24,738      53,831     55,021
  Interest expense                    (8,359)    (8,125)    (16,513)   (16,604)
  Provision for loan losses          (12,678)   (10,486)    (24,812)   (18,855)
                                     -------    -------     -------    -------
  Servicing fees on securitized loans $9,191    $10,433     $22,624    $28,568
                                     =======    =======     =======    =======
</TABLE>

  The increase in revenues from transaction processing services for both the 
three and six months ended June 30, 1997, resulted primarily from the addition 
of new clients, increased revenue per customer contact processed in our 
TeleServices business, a higher volume of Network Transaction Services point-
of-sale transactions processed and increased revenues from the sale and 
servicing of point-of-sale terminals.  The number of TeleServices customer 
contacts processed for the three months ended June 30, 1997, totaled 1.9 
million, down 9.8% from 2.1 million in the same period in 1996.  For the six 
months ended June 30, 1997, the number of TeleServices customer contacts 
processed totaled 4.3 million, down 8.6% from 4.7 million in the same period in 
1996.  The decrease in the number of customer contacts was offset by an increase
in revenues per customer contact processed due to a greater mix of technical
help desk calls to total calls processed.  The shift in service minutes to
longer technical service support calls resulted in increased TeleServices
revenues even though total service minutes decreased to 9.1 million and 20.2
million for the three and six months ended June 30, 1997 from 10.8 million and
24.7 million for the same periods in 1996.  For the three months ended June 30,
1997, the number of point-of-sale transactions processed totaled 109.1 million,
up 4.1% from 104.8 million in the same period in 1996.  For the six months ended
June 30, 1997, the number of point-of-sale transactions processed totaled 210.9
million, up 4.4% from 202.0 million in the same period in 1996.  The increase
in revenues from Managed programs for both the three and six months ended June
30, 1997, resulted primarily from an increase in the volume of Commercial
Account Processing Services provided, offset by a decrease in credit life
insurance program revenues.  The increase in revenues from HSB programs for the
six months ended June 30, 1997, was due to an increase in late fee revenue
resulting primarily from changes in late fee terms initiated in 1996.  The

                                       10
<PAGE>
decrease in servicing fees on securitized loans
for the three and six months ended June 30, 1997 was due primarily to a higher
rate of credit losses on securitized loans.

  Merchant discount revenue decreased 50.1% to $3.7 million for the three 
months ended June 30, 1997, as compared to $7.4 million for the same period 
last year. For the six months ended June 30, 1997 merchant discount revenue 
decreased 55.2% to $6.8 million in 1997 compared to the same period last year.  
The decrease in merchant discount revenue for the three and six months ended 
June 30, 1997, resulted from decreased sales activity and from the deferral of 
$1.1 million of merchant discount revenues in the second quarter of 1997 and 
the deferral of $3.5 million of merchant discount revenues in the first six 
months of 1997 related to interest deferred promotional payment plans.  As of 
June 30, 1997, $2.8 million of merchant discount revenue has been deferred 
which will be amortized and recognized as interest income over the life of the 
promotional payment plans.  Merchant discount revenue was 4.2% and 8.8% of net 
operating revenues for the three months ended June 30, 1997 and 1996, 
respectively, and was 3.8% and 8.9% of net operating revenues for the six 
months ended June 30, 1997 and 1996, respectively.

  For the three months ended June 30, 1997, net credit income increased 51.3% 
to $16.9 million from the same period a year ago as a result of higher net 
interest income.  For the six months ended June 30, 1997, net credit income 
increased 60.4% to $28.9 million from the same period a year ago as a result of 
higher net interest income partially offset by an increase in the provision for 
loan losses. 

  The increase in interest revenue for the three and six months ended June 30, 
1997, resulted primarily from the amortization of $4.2 million and $9.9 million 
of deferred merchant discount revenue into interest income, respectively, 
related to interest-deferred promotional payment plans and an increase in the 
yield on credit card loans due in part to performance-based pricing initiatives 
implemented in 1996, partially offset by higher charge-offs of interest 
revenue.  

  The increase in interest expense for the three months ended June 30, 1997, 
resulted from higher interest rates on borrowings partially offset by a 
decrease in average borrowings due mainly to a decrease in credit card loans. 
The decrease in interest expense for the six months ended June 30, 1997, 
resulted from a decrease in average borrowings due to a decrease in credit card 
loans, coupled with lower interest expense associated with interest rate 
contracts. 

  The increase in the provision for loan losses for the six months ended June 
30, 1997, is attributable to an increase in the net charge-off rate, partially 
offset by a decline in the amount of credit card loans outstanding resulting 
from the Company's portfolio improvement program designed to limit the 
Company's exposure to higher risk accounts.  In addition, post-holiday pay
downs have continued to decrease receivables, creating a provision benefit.
Net charge-offs as a percentage of average credit card loans on an owned basis
increased to 8.81% in the second quarter of 1997 from 7.28% in the second
quarter of 1996.  

  For the six months ended June 30, 1997 and 1996, net charge-offs as a 
percentage of average credit card loans on an owned basis increased to 8.96% 
from 6.79%, respectively.  However, the net charge-off percentage of 9.09% for 
the first quarter of 1997 decreased to 8.81% for the second quarter of 1997.  

  The industry-wide trend of increasing credit loss rates, which the Company 
believes is related to increased consumer debt levels and bankruptcy rates, 
contributed to the increase in the Company's net charge-off rate.  The Company 
believes that this industry-wide trend may continue and that the Company may 
experience a higher net charge-off rate for the full year 1997 as compared to 
1996. 

                                        11

<PAGE>
  In 1996, the Company took corrective measures to reduce future charge-offs by 
implementing a portfolio improvement program that analyzes credit risk and 
credit behavior scores for existing accounts, taking into consideration their 
current financial condition; re-scoring existing accounts and reducing credit 
lines or closing accounts as appropriate; accelerating the development schedule 
for new credit scoring models; and increasing collection efforts by adding 
collectors, expanding call hours, and identifying high-risk accounts to 
accelerate contacts.  To help mitigate the impact of higher charge-offs, the 
Company has also instituted changes in cardholder terms and has instituted the 
implementation of certain client pricing revisions, including those for 
promotional programs.  The Company believes these actions, along with other 
operational changes, will have an increasingly positive impact over time and 
will serve to moderate the effects of a difficult credit environment.

  The Company's expectations about future charge-off rates and portfolio 
improvements are subject to uncertainties that could cause actual results to 
differ materially from the Company's expectations, as described above.  Factors 
that influence the level and direction of credit card loan delinquencies and 
charge-offs include changes in consumer spending and loan payment patterns, 
bankruptcy trends, the seasoning of the Company's loan portfolio, interest rate 
movements and their impact on consumer behavior, and the rate and magnitude of 
changes in the Company's credit card loan portfolio, including the overall mix 
of accounts, products and loan balances within the portfolio.

  For the three months ended June 30, 1997, total operating expenses of $73.2 
million represented an increase of 0.7% over the same period last year.  Total 
operating expenses as a percentage of net operating revenues declined to 83.3% 
for the three months ended June 30, 1997, as compared to 87.2% for the same 
period a year ago.  For the six months ended June 30, 1997, total operating 
expenses of $151.6 million represented an increase of 5.4% over the same period 
last year.  Total operating expenses as a percentage of net operating revenues 
rose to 85.0% for the six months ended June 30, 1997, as compared to 83.5% for 
the same period a year ago.

  For the three months ended June 30, 1997, salaries and employee benefits 
totaled $28.3 million, an increase of 15.5% from $24.5 million from the same 
period a year ago. For the six months ended June 30, 1997, salaries and 
employee benefits totaled $57.8 million, an increase of 18.8% from $48.7 
million from the same period a year ago.  The Company added approximately 452 
additional full-time equivalent employees since June 30, 1996. Nearly all of 
these new employees were assigned to field processing facilities to address 
increased collection efforts and to provide for increased TeleServices volume.

  Processing and service expenses include data processing, communications and 
account processing expenses, which are influenced, in part, by changes in 
transaction volume. For the three months ended June 30, 1997, such expenses 
decreased to $24.4 million, or 9.2% on a period-to-period basis. For the six 
months ended June 30, 1997, processing and service expenses decreased to $52.7 
million, or 1.5% from the same period a year ago.  The decrease in processing 
and service expenses for both periods resulted from a lower volume of private
label transactions processed and a decrease in the level of TeleServices
minutes.  Processing and service expenses as a percentage of net operating
revenues declined to 27.7% for the three months ended June 30, 1997, as
compared to 32.2% for the comparable prior year period.  Processing and service
expenses as a percentage of net operating revenues declined to 29.6% for the
six months ended June 30, 1997, as compared to 31.1% for the comparable prior
year period.

  Other expenses include expenses relating to business development, merchant 
marketing, occupancy, advertising and promotion, cost of terminals sold, credit 
card fraud and other miscellaneous employee and administrative expenses.  For 
the three months ended June 30, 1997 and 1996, other expenses totaled $20.5 
million and $21.4 million, respectively.  For the six months ended June 30, 
1997 and 1996, other expenses totaled $41.1 million and $41.7 million, 
respectively.  The decrease in other expenses for both periods resulted from 


                                       12

<PAGE>
increased collection expenses, administrative expenses and occupancy expenses, 
offset by decreased merchant marketing incentives expense.  Other expenses were 
23.4% and 25.6% of net operating revenues for the three months ended June 30, 
1997 and 1996, respectively.  Other expenses were 23.0% and 24.2% of net 
operating revenues for the six months ended June 30, 1997 and 1996, 
respectively.

The table below sets forth owned credit card loan net charge-off and loan 
delinquency information with supplemental total loan information regarding the 
Company's credit card loan portfolio as of and for the year-to-date periods 
indicated.
<TABLE>
<CAPTION>
                               June 30, 1997           June 30, 1996         December 31, 1996
                            ----------------------------------------------------------------------
                                             Total                  Total                    Total
                                 Owned       Loans*     Owned       Loans*      Owned        Loans*
                                 -----       -----      -----       -----       -----        -----
Dollars in Thousands                 (Unaudited)           (Unaudited)
<S>                         <C>         <C>         <C>         <C>         <C>         <C> 
Average credit card loans   $1,510,234  $2,114,453  $1,564,052  $2,148,155  $1,512,986  $2,095,026
Period-end credit card 
loans                       $1,338,600  $1,918,600  $1,421,568  $2,001,568  $1,637,507  $2,217,507

Net charge-offs as a % of 
average credit card loans         8.96%       8.86%       6.79%       6.76%       7.82%      7.66%

Accruing loans contractually 
past due as to principal and 
interest payments
  30-89 days                      5.37%       4.97%       5.24%       4.93%       4.97%      4.88%
  90-179 days                     4.04%       3.69%       3.75%       3.44%       4.15%      3.89%

* Total loans represents both owned and securitized credit card loans.
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

  Through its liquidity policies, the Company seeks to ensure access to cost 
effective funding in all business environments.  This objective is accomplished 
through diversification of funding sources, extension of funding terms and 
staggering of liability maturities.

  The Company's capital policies seek to maintain a strong balance sheet 
consistent with the Company's business risks as well as regulatory 
requirements.  The Company's subsidiary bank, HSB, targets the maintenance of 
capital levels considered for regulatory purposes to be "well-capitalized" as 
defined by the FDIC Improvement Act of 1991.

  The Company finances its operations from three principal sources:  deposit 
taking activities utilizing certificates of deposit ("CDs")in denominations of 
$100,000 or more; securitizations of credit card loans; and borrowings from 
MSDWD.

  HSB administers a certificate of deposit program through which CDs are issued 
to investors in denominations of $100,000 or more.  Such CDs are issued to 
investors under two programs - an institutional CD program and a retail CD 
program.  CDs under the institutional CD program are issued directly by HSB to 
the investor and generally have a maturity of one to twelve months.  CDs under 
the retail CD program are issued to investors through Dean Witter Reynolds 
Inc., a subsidiary of MSDWD, and generally have a maturity of two to 10 years.  
As of June 30, 1997, CDs outstanding were $490.2 million, of which 
institutional CDs represented $225.0 million and retail CDs represented $265.2 
million.

  HSB maintains a loan securitization program with Receivables Capital 
Corporation ("RCC"), and at June 30, 1997, outstanding loans sold under such 
program were $280.0 million.  HSB also maintains a loan securitization program 
with Barton Capital Corporation ("BCC"), and at June 30, 1997, outstanding 
loans sold under such program were $300.0 million.  At June 30, 1997, $580.0 
million or 30.2% of the HSB Program loans had been sold through loan 
securitizations.






                                      

                                         13
<PAGE>
  The RCC loan securitization program, which was scheduled to expire in June 
1997, has been amended so that it now expires August 31, 1997.  In April 1997 
the then expiring BCC program agreement was amended and restated.  The amended 
and restated agreement with BCC includes the elimination of the MSDWD guarantee 
(which provided credit support in the transaction) and its replacement with a 
funded cash collateral account recorded on the balance sheet as "amounts due 
from asset securitizations."  Funding for this cash collateral account will 
initially be provided by a special purpose corporation established as a 
subsidiary of the Company.  This updated BCC facility is scheduled to expire in 
April 1998.  The Company expects to renew or replace these facilities on or 
prior to their expiration dates.  If these programs are not extended on or 
prior to their expiration dates, collections allocable to RCC and BCC under the 
programs will be paid to RCC or to BCC, as applicable, and the interests of RCC 
and of BCC in the applicable securitization pool will gradually decline to 
zero.  Any receivables originated after a program's expiration date would 
remain on the Company's consolidated balance sheet.

  The Company has an Amended and Restated Borrowing Agreement (as amended, the 
"Borrowing Agreement") and a facility fee letter agreement (as amended, the 
"Facility Fee Agreement"), with MSDWD, pursuant to which MSDWD has agreed to 
provide financing to the Company.  MSDWD and the Company have agreed to extend 
the term of the Borrowing Agreement to April 11, 1998 and to reduce the maximum 
amount available under the Borrowing Agreement to $1.2 billion from $1.25 
billion.  At July 31, 1997, the Company had $598.9 million outstanding under 
the Borrowing Agreement.  Under the Facility Fee Agreement, the Company has 
agreed to pay certain monthly facility fees in connection with its financing 
arrangements with MSDWD.

  Cash flows from operating activities resulted in net proceeds of cash of 
$38.2 million and $102.1 million for the six months ended June 30, 1997 and 
1996, respectively. 

  Cash flows from investing activities for the six months ended June 30, 1997 
resulted in net proceeds of cash of $216.4 million, primarily consisting of net 
principal collected on credit card loans, representing the difference between 
sales made using the cards and payments received from cardholders ($228.9 
million), partially offset by investments in short-term U.S. Treasury bills 
resulting in net uses of cash ($7.8 million).  Cash flows from investing 
activities for the six months ended June 30, 1996 resulted in net proceeds of 
cash of $136.0 million, primarily consisting of net proceeds of cash from the 
sale of a private label credit card portfolio ($138.9 million) and net 
principal collected on credit card loans ($6.5 million).

  Cash flows from financing activities for the six months ended June 30, 1997 
resulted in net uses of cash of $244.7 million, primarily consisting of a net 
decrease in borrowings due to affiliated companies ($275.4 million), partially 
offset by a net increase in interest-bearing deposits resulting from the 
issuance of jumbo certificates of deposit ($35.8 million). Cash flows from 
financing activities for the six months ended June 30, 1996 resulted in net 
uses of cash of $237.5 million, primarily consisting of a net decrease in 
borrowings due to affiliated companies ($269.1 million), partially offset by a 
net increase in interest-bearing deposits resulting from the issuance of jumbo 
certificates of deposit ($39.6 million).  At June 30, 1997 and 1996, the 
Company had cash and cash equivalents of $25.1 million and $9.4 million, 
respectively.

  The Company currently has no material commitments requiring capital 
expenditures.  The Company has not paid any dividends on its Common Stock and 
anticipates retaining future operating cash flows for the foreseeable future to 
finance growth and business expansion rather than to pay dividends to its 
stockholders. Any future determination as to the payment of dividends will 
depend upon results of operations, capital requirements, financial condition of 
the Company and such other factors as the Board of Directors of the Company in 
its discretion shall determine. Periodically, SPS and HSB have paid dividends 
to the Company. The amount of dividends that can be paid to the Company by HSB 
is restricted by applicable banking regulations.


                                      14
<PAGE>
INTEREST RATE RISK

  The Company's interest rate risk policies are designed to reduce the 
volatility of earnings resulting from changes in interest rates.  This is 
accomplished primarily through matched financing, where possible, which entails 
matching the repricing schedules of credit card loans and the related 
financing.  Matched financing includes the funding of variable rate credit card 
loans that are primarily indexed to the prime rate with floating rate financing 
that is primarily indexed to commercial paper rates and the federal funds rate. 
The Company generally retains basis risk between the prime rate and commercial 
paper/federal funds rates on variable rate credit card loans. Fixed rate credit 
card loans are generally funded with fixed rate financing (financing with an 
initial term of one year or greater).

  The Company also funds fixed rate credit card loans with floating rate 
financing by utilizing interest rate swaps, cost of funds agreements and 
interest rate caps to adjust the repricing characteristics of its financing to 
fixed rate financing.  Under interest rate swaps and cost of funds agreements, 
the Company effectively exchanges the interest payments on its financing with 
those of a counterparty. Interest rate cap agreements effectively establish a 
maximum interest rate on certain of the Company's floating rate borrowings. 
Interest rate swap agreements are entered into with an affiliate. Interest rate 
cap agreements are entered into with institutions that are established dealers 
in these instruments and that maintain certain minimum credit criteria 
established by the Company. Costs of funds agreements are entered into as part 
of agreements pursuant to which the Company owns the credit card loan portfolio 
and provides private label credit card processing services to certain of its 
credit card merchant clients.

  To reduce the volatility of interest expense from changes in interest rates, 
the Company had outstanding interest rate swaps and cost of funds agreements of 
$459.5 million and $596.8 million at June 30, 1997 and 1996, respectively.

  At June 30, 1997 and 1996, the Company had $10.0 million and $40.0 million of 
interest rate cap agreements, respectively. At June 30, 1997, the current 
variable rates on all interest rate cap agreements exceeded the specified cap 
rates.

  At June 30, 1997 and 1996, the Company's interest rate swap agreements had 
maturities ranging from October 1997 to December 2000 and from December 1996 to 
December 2000, respectively. At June 30, 1997, the Company's interest rate cap 
agreement had a maturity of September 1997.  At June 30, 1996, the Company's 
interest rate cap agreements had maturities ranging from February 1997 to 
September 1997.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

  In the normal course of business, the Company is involved in litigation 
incidental to the business.  The consequences of these matters are not 
presently determinable but, in the opinion of management after consultation 
with counsel, the ultimate liability, if any, will not have a material adverse 
effect on the consolidated results of operations or financial position of the 
Company.

Item 2.  Changes in Securities.- None.

Item 3.  Defaults Upon Senior Securities.- None

                                    





                                         15
<PAGE>
Item 4.  Submission of Matters to a Vote of Security Holders.

  The Registrant held its annual meeting of stockholders in Glencoe, Illinois 
on April 29, 1997. The results of the matters submitted to a vote of 
stockholders through the solicitation of proxies at the annual meeting were as 
follows:

1. The following nominees for election as directors of the Company were elected 
by the votes indicated below:
<TABLE>
<CAPTION>

Director                   Votes For           Votes Withheld
--------                  -----------          --------------
<S>                       <C>                  <C>
Thomas C. Schneider        26,033,553             309,526
Frank T. Cary              26,049,146             293,933
Christine A. Edwards       26,033,795             309,284
Mitchell M. Merin          26,032,353             310,726
Charles F. Moran           26,027,145             315,934
Philip J. Purcell          26,027,841             315,238
Dennie M. Welsh            26,032,995             310,084
Robert L. Wieseneck        26,013,919             329,160
</TABLE>

2. Stockholders approved the appointment of Deloitte & Touche LLP as the 
Company's independent auditors for the 1997 fiscal year by the following vote: 
votes for - 26,221,311; votes against - 81,740; and abstentions - 40,028.

Item 5.  Other Information.- None.

Item 6.  Exhibits and Reports on Form 8-K.

(a) Exhibits.

    10.1 Fourth Amendment to the Amended and Restated Borrowing Agreement dated
         as of April 13, 1997, between the Company and MSDWD.

    10.2 Amendment to the Facility Fee Letter Agreement dated as of April 13, 
         1997, between the Company and MSDWD.

    27.0 Financial Data Schedule

(b) Reports on Form 8-K.

      A Current Report on form 8-K, dated July 31, 1997, was filed with the 
Securities and Exchange Commission reporting Item 7 relating to the 
Company's 1997 Second Quarter Report to Stockholders.

      A Current Report on form 8-K, dated July 15, 1997, was filed with the 
Securities and Exchange Commission reporting Item 7 relating to the 
Company's second quarter earnings release.

      A Current Report on form 8-K, dated May 8, 1997, was filed with the 
Securities and Exchange Commission reporting Item 7 relating to the 
Company's new Chairman and organizational changes.

  A Current Report on form 8-K, dated April 15, 1997, was filed with the 
Securities and Exchange Commission reporting Item 7 relating to the 
Company's first quarter earnings release.











                                      16
<PAGE>
                                 SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.



                                    SPS TRANSACTION SERVICES, INC.
                                    ------------------------------
                                            (Registrant)




Date:  August 13, 1997              By:/s/ Russell J. Bonaguidi
       ---------------              -----------------------------------
                                    Russell J. Bonaguidi
                                    Vice President and Controller (Duly
                                    Authorized Officer and Principal
                                    Accounting Officer)














































                                        17
<PAGE>
EDGAR
Exhibit    Description of Exhibits
-------    -----------------------

  10.1     Fourth Amendment to the Amended and Restated Borrowing Agreement  
           dated as of April 13, 1997, between the Company and MSDWD.

  10.2     Amendment to the Facility Fee Letter Agreement dated as of April 13, 
           1997, between the Company and MSDWD.

  27.0     Financial Data Schedule