<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, 1998

   [ ]  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, 1998, the Registrant had 27,312,030 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,
                                                       1998            1997
                                                   ------------    ------------
                                                    (Unaudited) 
<S>                                                <C>             <C>
ASSETS:
  Cash and due from banks                            $   13,808     $   14,730
  Investments held to maturity - at amortized cost       36,753         36,617
  Credit card loans                                   1,073,914      1,295,787
  Allowance for loan losses                             (73,969)       (79,726)
                                                     ----------     ----------
    Credit card loans, net                              999,945      1,216,061
  Accrued interest receivable                            15,264         21,847
  Accounts receivable                                    23,572         29,349
  Due from affiliated companies                          12,534          9,921
  Amounts due from asset securitizations                 90,489         93,260
  Premises and equipment, net                            30,904         32,895
  Deferred income taxes                                  38,252         43,059
  Prepaid expenses and other assets                      14,483         14,664
                                                     ----------     ----------
TOTAL ASSETS                                         $1,276,004     $1,512,403
                                                     ==========     ==========
LIABILITIES:
  Deposits:
    Noninterest-bearing                              $    7,354     $    6,206
    Interest-bearing                                    556,480        504,088
                                                     ----------     ----------
  Total deposits                                        563,834        510,294
  Accounts payable, accrued expenses and other           75,963         80,283
  Income taxes payable                                   19,057         19,725
  Due to affiliated companies                           332,303        639,066
                                                     ----------     ----------
    Total liabilities                                   991,157      1,249,368
                                                     ----------     ----------
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; 27,338,694 and    
    27,276,269 shares issued; 27,311,030 and 
    27,206,883 shares outstanding at June 30, 1998
    and December 31, 1997, respectively                     273            273
  Capital in excess of par value                         82,725         81,586
  Retained earnings                                     202,510        182,845
  Common stock held in treasury, at cost, $.01
    par value, 27,664 and 69,386 shares at June 30,
    1998 and December 31, 1997, respectively               (611)        (1,662)
  Stock compensation related adjustments                    (50)            (7)
                                                     ----------     ----------
    Total stockholders' equity                          284,847        263,035
                                                     ----------     ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $1,276,004     $1,512,403
                                                     ==========     ==========

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,
                                    ------------------     -------------------
                                     1998        1997        1998       1997 
                                    -------    -------     --------   --------
                                        (Unaudited)            (Unaudited)
<S>                                 <C>        <C>         <C>        <C>
Processing and service revenues     $63,966    $67,264     $132,108   $142,573
Merchant discount revenue             3,083      3,678        6,049      6,816
                                    -------    -------     --------   --------
                                     67,049     70,942      138,157    149,389

Interest revenue                     54,421     62,401      109,627    126,477
Interest expense                     15,020     19,444       32,059     39,826
                                    -------    -------     --------   --------
  Net interest income                39,401     42,957       77,568     86,651
Provision for loan losses            20,961     26,082       47,972     57,793
                                    -------    -------     --------   --------
  Net credit income                  18,440     16,875       29,596     28,858
                                    -------    -------     --------   --------

Net operating revenues               85,489     87,817      167,753    178,247

Salaries and employee benefits       27,159     28,274       55,346     57,797
Processing and service expenses      24,568     24,369       46,959     52,696
Other expenses                       18,205     20,543       34,231     41,084
                                    -------    -------     --------   --------
  Total operating expenses           69,932     73,186      136,536    151,577
                                    -------    -------     --------   --------

Income before income taxes           15,557     14,631       31,217     26,670
Income tax expense                    5,727      5,647       11,490     10,295
                                    -------    -------     --------   --------
Net income                          $ 9,830    $ 8,984     $ 19,727   $ 16,375
                                    =======    =======     ========   ========

Basic earnings per common share     $  0.36    $  0.33     $   0.72   $   0.60
                                    
Diluted earnings per common share   $  0.36    $  0.33     $   0.72   $   0.60

Basic weighted average common
  shares outstanding                 27,289     27,209       27,269     27,203

Diluted weighted average common
  shares outstanding                 27,538     27,386       27,494     27,376


See notes to unaudited consolidated financial statements.

</TABLE>












                                         3
<PAGE>
SPS TRANSACTION SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
                                                            Six Months Ended
                                                                June 30,
                                                         ----------------------
                                                           1998          1997
                                                         --------     ---------
                                                              (Unaudited)
<S>                                                      <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                             $ 19,727     $ 16,375
  Adjustments to reconcile net income to
  net cash flows from operating activities:                                 
    Depreciation and amortization                           5,892        6,735
    Provision for loan losses                              47,972       57,793
    Compensation payable in common stock                      826           --
    Deferred income taxes                                   4,807        4,803
  (Increase) decrease in operating assets:
    Amounts due from affiliated companies                  (2,613)       2,405
    Accrued interest receivable and accounts receivable    12,360       10,208
    Amounts due from asset securitizations                  2,771      (56,915)
    Prepaid expenses and other assets                        (519)       2,392
  Increase (decrease) in operating liabilities:
    Accounts payable, accrued expenses and other           (2,592)        (963)
    Income taxes payable                                     (668)      (9,722)
    Amounts due to affiliated companies                    (2,680)       5,069
                                                         --------     --------
    Net cash from operating activities                     85,283       38,180
                                                         --------     --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Investments held to maturity - purchases                (74,136)    (105,932)
  Investments held to maturity - maturities                74,000       98,100
  Net principal collected on credit card loans            165,211      228,904
  Purchases of premises and equipment, net                 (1,790)      (4,647)
                                                         --------     --------
    Net cash from investing activities                    163,285      216,425
                                                         --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase (decrease) in  
    noninterest-bearing deposits                            1,148       (5,128)
  Net increase in interest-bearing deposits                52,392       35,757
  Net decrease in due to affiliated companies            (304,083)    (275,422)
  Proceeds from exercise of stock options                   1,053           25
  Purchase of treasury stock, at cost                          --           70
                                                         --------     --------
    Net cash from financing activities                   (249,490)    (244,698)
                                                         --------     --------

(Decrease) increase in cash and due from banks               (922)       9,907
Cash and due from banks, beginning of period               14,730       15,205
                                                         --------     --------
Cash and due from banks, end of period                   $ 13,808     $ 25,112
                                                         ========     ========



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, 1998 AND 1997
-------------------------------------------------------------------------------

A. SALE OF ASSETS

  On April 18, 1998, the Company and Associates First Capital Corporation 
("The Associates") entered into a stock purchase agreement (the "Purchase 
Agreement") pursuant to which the Company has agreed to sell and The 
Associates has agreed to acquire substantially all of the assets of the 
Company, consisting of all of the capital stock of the Company's two 
wholly-owned operating subsidiaries - SPS Payment Systems, Inc. and 
Hurley State Bank, for a price of approximately $896 million in cash, 
upon the terms and subject to the conditions of the Purchase Agreement, 
including approval by the Company's stockholders.  As of April 18, 1998, 
the operations of SPS Payment Systems, Inc. and Hurley State Bank, which 
are considered discontinued operations, represent virtually all of the 
operations of the Company.  The Associates has also agreed to fund the 
repayment of all intercompany indebtedness of SPS Payment Systems, Inc. 
and Hurley State Bank, and their subsidiaries, owing to the Company or 
its affiliates. 

  NOVUS Credit Services Inc. has entered into a voting agreement with The 
Associates pursuant to which NOVUS has agreed to vote all shares of the Company 
owned by it in favor of the transactions contemplated by the Purchase 
Agreement.  The voting agreement is terminable upon the earliest to occur of 
(i) the prior termination of the Purchase Agreement, (ii) the consummation of 
the sale transaction contemplated by the Purchase Agreement and (iii) January 
18, 1999.  Unless the Voting Agreement is terminated in accordance with its 
terms, NOVUS's obligation to vote in favor of the transactions contemplated by 
the Purchase Agreement is unconditional and absolute.  The sale, which is 
pending, is subject to certain closing conditions, and is expected to close by 
the end of 1998.


  The per share price that will be distributed to the Company's public 
stockholders, which will be approximately $32, will be greater than the net per 
share price to be received by MSDW, since MSDW will assume certain liabilities 
and obligations incurred by the Company in connection with the sale.  The 
distribution of the purchase price to the Company's public stockholders will be 
effected pursuant to a merger of the Company with an indirect subsidiary of 
MSDW as soon as practical after the closing of the sale of assets.  The per 
share amount to be received by the public stockholders will be set forth in the 
Company's proxy statement that will be mailed to stockholders in connection 
with a special stockholders meeting to vote upon the sale and the merger.  
Proxy materials will be mailed to stockholders following receipt of all 
regulatory approvals.  All outstanding options not otherwise previously 
canceled by the option agreements will fully vest at the closing.  Holders of 
options to purchase Company common stock who have not previously exercised 
their options will receive in the merger an amount of cash per share underlying 
such option equal to the amount, if any, by which the per share purchase price 
paid in the merger to public stockholders of Company stock exceeds the exercise 
price of the options.

B.  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 73.2% 
majority owned subsidiary of NOVUS Credit Services Inc., which in turn is a 
wholly owned, direct subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"). 


                                          5
<PAGE>

  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 insured by the 
Federal Deposit Insurance Corporation.

  The Consolidated Balance Sheet as of June 30, 1998, and the Consolidated 
Statements of Income for the three and six months ended June 30, 1998 and 1997, 
and the Consolidated Statements of Cash Flows for the six months ended June 30, 
1998 and 1997 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 consolidated financial statements are prepared in accordance with 
generally accepted accounting principles, which require management to make 
estimates and assumptions regarding credit card loan loss levels, the potential 
outcome of litigation and other matters 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 
1997 Annual Report to Stockholders and Annual Report on Form 10-K.  The results 
of operations for the interim periods are not necessarily indicative of results 
to be expected for the entire year.

C.	 EARNINGS PER SHARE

  The calculations of basic and diluted earnings per common share are based on 
the weighted average number of common shares outstanding for basic earnings per 
share and the total weighted average number of common shares and share 
equivalents outstanding for diluted earnings per share.  The difference between 
basic and diluted earnings per share is the result of including weighted common 
share equivalents in the computation of diluted earnings per share.  Weighted 
common share equivalents for the three months ended June 30, 1998 and 1997 were 
248,851 and 177,203, respectively.  Weighted common share equivalents for the 
six months ended June 30, 1998 and 1997 were 225,478 and 172,559, respectively.

D.  RECENT ACCOUNTING PRONOUNCEMENTS 

  As of January 1, 1998, the Company adopted Statement of Financial Accounting 
Standards ("SFAS") No. 130, "Reporting Comprehensive Income,"  which 
establishes standards for the reporting and presentation of comprehensive 
income.  SFAS No. 130 did not have any effect on the Company's financial 
statements for the periods presented as net income represents total 
comprehensive income. 

  In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS 
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
This statement establishes standards for the disclosure requirements related to 
segments.  SFAS No. 131 is effective for fiscal years beginning after December 
15, 1997, and interim reporting is not required until interim periods beginning 
after initial year of application.





                                          6
<PAGE>

  As of January 1, 1998, the Company adopted Statement of Position ("SOP") 98-1 
"Accounting for the Costs of Computer Software Developed or Obtained for 
Internal Use."  SOP 98-1 requires the capitalization of certain costs related 
to the development or purchase of internal-use computer software. The adoption 
of SOP 98-1 was not material to the Company's consolidated financial position 
or results of operations.

  In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative 
Instruments and Hedging Activities," which establishes accounting and reporting 
standards for derivative instruments, including certain derivative instruments 
embedded in other contracts, and for hedging activities.  The statement is 
effective for fiscal years beginning after June 15, 1999.

E.  ALLOWANCE FOR LOAN LOSSES

  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)
                                        1998       1997       1998       1997
                                      -------    -------    -------    -------

<S>                                   <C>        <C>        <C>        <C>
Balance, beginning of period          $74,822    $84,394    $79,726    $88,397
Additions:
  Provision for loan losses            20,961     26,082     47,972     57,793

Deductions:
  Charge-offs                         (30,488)   (37,406)   (68,579)   (78,767)
  Less: recoveries                      6,519      6,050     12,695     11,697
                                      -------    -------    -------    -------
  Net charge-offs                     (23,969)   (31,356)   (55,884)   (67,070)
                                      -------    -------    -------    -------
Other(1)                                2,155         --      2,155         --
                                      -------    -------    -------    -------
Balance, end of period                $73,969    $79,120    $73,969    $79,120
                                      =======    =======    =======    =======
  (1) Primarily reflects transfers related to asset securitizations.
  
  At June 30, 1998, there were $58.2 million in loans past due 30 days through 
89 days, and $44.1 million in loans past due 90 days through 179 days.

  Credit card loans sold through asset securitization transactions and serviced 
by the Company totaled $580.0 million at June 30, 1998 and 1997.

</TABLE>

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND  
RESULTS OF OPERATIONS

RECENT DEVELOPMENTS

  On April 18, 1998, the Company and The Associates entered into the Purchase 
Agreement pursuant to which the Company has agreed to sell and The Associates 
has agreed to acquire substantially all of the assets of the Company, 
consisting of all of the capital stock of the Company's two wholly-owned 
operating subsidiaries - SPS Payment Systems, Inc. and Hurley State Bank, for a 
price of approximately $896 million in cash, upon the terms and subject to the 
conditions of the Purchase Agreement, including approval by the Company's 
stockholders.  The Associates has also agreed to fund the repayment of all 
intercompany indebtedness of SPS Payment Systems, Inc. and Hurley State Bank, 
and their subsidiaries, owing to the Company or its affiliates.






                                           7
<PAGE>

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: TeleServices, Network 
Transaction Services, 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 call center processing and Network Transaction Services such as 
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 TeleServices typically are based on the 
length of service minutes and type of customer contacts processed through 
activities such as technical help-desk inquiries, customer billing inquiries 
and catalog order processing.  Revenues from electronic transaction processing 
typically are based on the number of electronic point-of-sale transactions 
processed rather than the dollar transaction amount.

  Managed programs include revenues received as a result of Commercial Accounts 
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 primarily consist of late fee revenue assessed on those Consumer 
Credit Card Services accounts 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. 

  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 deferred and accreted 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 accretion of certain deferred 
merchant discount revenue. Net credit income is calculated by subtracting 
interest expense and the provision for loan losses from interest revenue.











                                          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
                                   --------------------   --------------------
                                    1998   1997  Change    1998   1997  Change
                                   ------ ------ ------   ------ ------ ------
  <S>                              <C>    <C>    <C>      <C>    <C>    <C>
  NET OPERATING REVENUES:
  Processing and service revenues   74.8%  76.6%  (4.9)%   78.8%  80.0%  (7.3)%
  Merchant discount revenue          3.6    4.2  (16.2)     3.6    3.8  (11.3)
  Net credit income                 21.6   19.2    9.3     17.6   16.2    2.6
                                   -----  -----           -----  -----  
                                   100.0  100.0   (2.7)   100.0  100.0   (5.9)
  OPERATING EXPENSES:
  Salaries and employee benefits    31.8   32.2   (3.9)    33.0   32.4   (4.2)
  Processing and service expenses   28.7   27.7    0.8     28.0   29.6  (10.9)
  Other expenses                    21.3   23.4  (11.4)    20.4   23.0  (16.7)
                                   -----  -----           -----  -----  
                                    81.8   83.3   (4.4)    81.4   85.0   (9.9)
  
  Income before income taxes        18.2   16.7    6.3     18.6   15.0   17.0 
  Income tax expense                 6.7    6.5    1.4      6.8    5.8   11.6 
                                   -----  -----           -----  -----  

  Net income                        11.5%  10.2%   9.4%    11.8%   9.2%  20.5%
                                   =====  =====           =====  =====  
</TABLE>
  Net income for the three months ended June 30, 1998 was $9.8 million, an 
increase of $0.8 million, or 9.4%, over the same period a year ago.  Basic and 
diluted earnings per common share for the three month period was $0.36, 
compared to $0.33 in the prior year's second quarter. Net income for the six 
months ended June 30, 1998 was $19.7 million, an increase of $3.4 million, or 
20.5%, over the same period a year ago.  Basic and diluted earnings per common 
share for the six month period was $0.72, compared to $0.60 for the same period 
a year ago.  

  Net operating revenues for the second quarter of 1998 were $85.5 million, a 
decrease of 2.7% over the same period last year.  Net operating revenues for 
the six months ended June 30, 1998, were $167.8 million, a decrease of 5.9% 
over the same period last year.  The decrease in net operating revenues for 
both periods resulted primarily from a decrease in processing and service 
revenues and merchant discount revenue partially offset by an increase in net 
credit income. 

  Processing and service revenues decreased 4.9% to $64.0 million for the three 
months ended June 30, 1998, as compared to $67.3 million for the same period 
last year.  For the six months ended June 30, 1998, processing and service 
revenues decreased 7.3% to $132.1 million as compared to $142.6 million for the 
same period last year.  Processing and service revenues represented 74.8% and 
76.6% of net operating revenues for the three months ended June 30, 1998 and 
1997, respectively.  For the six months ended June 30, 1998 and 1997, 
processing and service revenues represented 78.8% and 80.0% 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)
                                        1998       1997       1998       1997 
                                      -------    -------    --------   --------
                                         (Unaudited)             (Unaudited)
  <S>                                 <C>        <C>         <C>        <C>
  Transaction processing services     $22,300    $24,169     $44,554    $48,631
  Managed Programs                     21,411     22,328      44,176     45,723
  HSB Programs                         11,695     11,576      22,804     25,595
  Servicing fees on securitized loans   8,560      9,191      20,574     22,624
                                      -------    -------    --------   --------
  Processing and service revenues     $63,966    $67,264    $132,108   $142,573
                                      =======    =======    ========   ========
</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)
                                        1998       1997       1998       1997 
                                      -------    -------    --------   --------
                                         (Unaudited)             (Unaudited)
  <S>                                 <C>        <C>         <C>        <C>
  Processing and service revenues     $3,279     $3,644      $6,734     $8,173
  Merchant discount revenue              640        824       1,743      1,945
  Interest revenue                    25,765     25,760      53,457     53,831
  Interest expense                    (8,318)    (8,359)    (16,634)   (16,513)
  Provision for loan losses          (12,806)   (12,678)    (24,726)   (24,812)
                                     -------    -------     -------    -------
  Servicing fees on securitized loans $8,560     $9,191     $20,574    $22,624
                                     =======    =======     =======    =======
</TABLE>
  The decrease in revenues from transaction processing services for both the 
three and six months ended June 30, 1998, resulted primarily from a lower 
volume of TeleServices minutes processed and decreased revenues from the sale 
and servicing of point-of-sale terminals, partially offset by increased 
revenues associated with a higher volume of Network Transaction Services point-
of-sale transactions processed.  The number of TeleServices service minutes 
processed for the three months ended June 30, 1998, totaled 10.6 million, down 
19.9% from 13.2 million in the same period in 1997.  For the six months ended 
June 30, 1998, the number of TeleServices service minutes processed totaled 
23.0 million, down 23.9% from 30.3 million in the same period in 1997. The 
decrease in the number of service minutes for both periods primarily reflects a 
change in service to a major client.  For the three months ended June 30, 1998, 
the number of point-of-sale transactions processed totaled 125.5 million, up 
15.1% from 109.1 million in the same period in 1997. For the six months ended 
June 30, 1998, the number of point-of-sale transactions processed totaled 239.2 
million, up 13.4% from 210.9 million in the same period in 1997.  

  The decrease in revenues from Managed programs for both the three and six 
months ended June 30, 1998, resulted primarily from a decrease in credit life 
insurance program revenues attributable to the decline in credit card loans 
outstanding and a lower number of cardholders enrolled in the program,
partially offset by an increase in the volume of Commercial Account Processing.







                                        10
<PAGE>
  The decrease in revenues from HSB programs for the six months ended June 30, 
1998 was due to a decrease in late fee revenue resulting from a lower number of 
delinquent accounts.  The decrease in delinquent accounts was attributable to 
the paydown of certain portfolios and the Company's portfolio improvement 
programs, designed to limit the Company's exposure to higher risk accounts.  
The Company had 2.8 million active consumer private label accounts, both owned 
and managed, at June 30, 1998, compared with 3.1 million accounts at June 30, 
1997.  Active commercial accounts grew 6.2% to 1,004,000 at June 30, 1998, 
compared to 945,000 at June 30, 1997. 

  The decrease in servicing fees on securitized loans for the three and six 
months ended June 30, 1998 was due primarily to lower late fee revenue on 
securitized loans which are a component of processing and service revenues.
                                         
  Merchant discount revenue decreased 16.2% to $3.1 million for the three 
months ended June 30, 1998, as compared to $3.7 million for the same period 
last year. For the six months ended June 30, 1998 merchant discount revenue 
decreased 11.3% to $6.0 million in 1998 compared to the same period last year.  
The decrease in merchant discount revenue for the three and six months ended 
June 30, 1998, resulted from decreased sales activity related to the decline in 
credit card loans.  As of June 30, 1998, $1.9 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 3.6% and 4.2% of net operating revenues for the three months ended 
June 30, 1998 and 1997, respectively, and was 3.6% and 3.8% of net operating 
revenues for the six months ended June 30, 1998 and 1997, respectively.

  For the three months ended June 30, 1998, net credit income increased 9.3% to 
$18.4 million from the same period a year ago.  For the six months ended June 
30, 1998, net credit income increased 2.6% to $29.6 million from the same 
period a year ago.  The increase for both periods resulted from a decline in 
provision for loan losses that more than offset the decline in net interest 
income. 

  The decrease in interest revenue for the three and six months ended June 30, 
1998, resulted primarily from the decrease in credit card loans and the 
accretion of $2.6 million and $6.0 million of deferred merchant discount 
revenue into interest income, respectively, compared to $4.2 million and $9.9 
million for the three and six months ended June 30, 1997, respectively, related 
to interest-deferred promotional payment plans.  The decrease in interest 
revenue was partially offset by a higher yield on credit card loans for both 
periods.

  The decrease in interest expense for the three and six months ended June 30, 
1998, was due to a decrease in average borrowings associated with the decline 
in credit card loans, partially offset by a 19 and 30 basis point increase in 
average interest rates on borrowings for the three and six months ended June 
30, 1998, respectively.

  The decrease in the provision for loan losses for the three and six months 
ended June 30, 1998, is primarily attributable to a decrease in the amount of 
net charge-offs due in part to a decline in the amount of credit card loans 
outstanding. 

The decline in credit card loans outstanding is related to certain portfolios 
that are in paydown, such as the Incredible Universe and McDuff portfolios, 
which were affected by Tandy Corporation's decision to close these formats 
beginning in the first quarter of 1997, and to the Company's portfolio 
improvement programs designed to limit the Company's exposure to higher risk 
accounts.  Net charge-offs as a percentage of average credit card loans on an
owned basis decreased to 8.54% in the second quarter of 1998 from 8.81% in the 
second quarter of 1997.  For the six months ended June 30, 1998 and 1997, net 
charge-offs as a percentage of average credit card loans on an owned basis

                                         11
<PAGE>
increased to 9.48% from 8.96%, respectively.  However, the Company did 
experience a decrease in the net charge-off percentage from 10.33% in the first 
quarter of 1998.  For 1998, the Company expects to experience a charge-off rate 
comparable to full year 1997.  In 1997, the Company intensified its measures to 
reduce future charge-offs and continues to implement measures designed to 
improve the credit quality of both new and existing credit card accounts.  The 
Company's expectations about future charge-off rates and credit quality are 
subject to uncertainties that could cause actual results to differ materially 
from what has been described above.  Factors that influence the level and 
direction of credit card loan delinquencies and charge-offs include changes in 
consumer spending and payment behaviors, 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, 1998, total operating expenses of $69.9 
million represented a decrease of 4.4% over the same period last year.  Total 
operating expenses as a percentage of net operating revenues declined to 81.8% 
for the three months ended June 30, 1998, as compared to 83.3% for the same 
period a year ago.  For the six months ended June 30, 1998, total operating 
expenses of $136.5 million represented a decrease of 9.9% over the same period 
last year.  Total operating expenses as a percentage of net operating revenues 
declined to 81.4% for the six months ended June 30, 1998, as compared to 85.0% 
for the same period a year ago.

  For the three months ended June 30, 1998, salaries and employee benefits 
totaled $27.2 million, a decrease of 3.9% from $28.3 million from the same 
period a year ago. For the six months ended June 30, 1998, salaries and 
employee benefits totaled $55.3 million, a decrease of 4.2% from $57.8 million 
from the same period a year ago.  The Company had approximately 495 fewer full-
time equivalent employees at June 30, 1998 compared to June 30, 1997, 
reflective of reduced staffing levels in the Company's TeleServices and 
Consumer Credit Card Services businesses.

  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, 1998, such expenses 
increased to $24.6 million, or 0.8% on a period-to-period basis. For the six 
months ended June 30, 1998, processing and service expenses decreased to $47.0 
million, or 10.9% from the same period a year ago.  The decrease in processing 
and service expenses for the six months ended June 30, 1998 as compared to the 
same period in 1997 resulted from decreased credit life insurance expense and 
expenses associated with a lower volume of TeleServices and Consumer Credit 
Card Services.  Processing and service expenses as a percentage of net 
operating revenues increased to 28.7% for the three months ended June 30, 1998, 
as compared to 27.7% for the comparable prior year period.  Processing and 
service expenses as a percentage of net operating revenues declined to 28.0% 
for the six months ended June 30, 1998, as compared to 29.6% 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, 1998 and 1997, other expenses totaled $18.2 
million and $20.5 million, respectively.  For the six months ended June 30, 
1998 and 1997, other expenses totaled $34.2 million and $41.1 million, 
respectively.  The decrease in other expenses for both periods resulted from 
decreased credit card fraud losses, merchant marketing, cost of terminals sold
and collection fees, partially offset by increased credit marketing expense.  
Other expenses were 21.3% and 23.4% of net operating revenues for the three 
months ended June 30, 1998 and 1997, respectively.  Other expenses were 20.4% 
and 23.0% of net operating revenues for the six months ended June 30, 1998 and 
1997, respectively.
                                         12
<PAGE>
The table below presents certain information regarding the Company's credit 
card loan net charge-offs, allowance for loan losses, and delinquency 
information with supplemental total loan information regarding the Company's 
credit card loan portfolio as of and for the year-to-date periods.
<TABLE>
<CAPTION>
                                  June 30, 1998          June 30, 1997        December 31, 1997
                            ----------------------------------------------------------------------
                                             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   $1,188,779  $1,768,779  $1,510,234  $2,090,234  $1,390,998  $1,970,998
Period-end credit card 
loans                       $1,073,914  $1,653,914  $1,338,600  $1,918,600  $1,295,787  $1,875,787

Net charge-offs as a % of 
average credit card loans         9.48%       9.19%       8.96%       8.86%       9.42%      9.16%

Allowance for loan losses as a 
% of period-end credit card
loans                             6.89%       5.84%       5.91%       5.30%       6.15%      5.46%

Accruing loans contractually 
past due as to principal and 
interest payments
  30-89 days                   $58,241     $82,290     $71,921     $95,401     $74,085   $100,413
                                  5.42%       4.98%       5.37%       4.97%       5.72%      5.35%
  90-179 days                  $44,067     $60,139     $54,145     $70,718     $60,360   $ 79,433
                                  4.10%       3.64%       4.04%       3.69%       4.66%      4.23%

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


LIQUIDITY AND CAPITAL RESOURCES

  Funding and Capital Policies:

  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's interest rate risk policies are designed to reduce the 
potential volatility of earnings that arises 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.

Principal Sources of Funding:

  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 
MSDW.

  HSB administers a CD program through which 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 12 months.  CDs under the retail CD program 
are issued to investors through Dean Witter Reynolds Inc., a subsidiary of 
MSDW, and generally have had a maturity of two to 10 years.  Currently, retail 

                                         13
<PAGE>
CDs with a maturity of two years are being offered.  As of June 30, 1998, CDs 
outstanding were $556.5 million, of which institutional CDs represented $279.1 
million and retail CDs represented $277.4 million.

  HSB maintains a loan securitization program with Barton Capital Corporation 
("BCC"), and at June 30, 1998, outstanding loans under such program were $300.0 
million.  HSB also maintains a loan securitization program with Receivables 
Capital Corporation ("RCC"), and at June 30, 1998, outstanding loans under such 
program were $280.0 million.  At June 30, 1998, $580.0 million or 35.1% of the 
HSB program loans had been sold through loan securitizations.

  The BCC loan securitization program, as amended, is scheduled to expire on 
April 15, 1999. The RCC loan securitization program is scheduled to expire in 
October 1998.  The amended and restated agreements with BCC and RCC include a 
limited guarantee of performance by MSDW and a funded cash collateral account 
recorded on the consolidated balance sheets as "amounts due from asset 
securitizations."  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 BCC and RCC under the 
programs will be paid to BCC or to RCC, as applicable, and the interests of BCC 
and of RCC 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 (the "Borrowing 
Agreement") and a facility fee letter agreement (as amended, the "Facility Fee 
Agreement")(collectively, the "Financing Agreements"), with MSDW, pursuant to 
which MSDW has agreed to provide financing to the Company.  The maximum amount 
available under the Borrowing Agreement, which expires November 20, 1998, is 
$1.1 billion.  At July 31, 1998, the Company had $269.8 million outstanding 
under the Borrowing Agreement.  Under the Facility Fee Agreement, the Company 
pays certain monthly facility fees in connection with its financing 
arrangements with MSDW.

  The Company expects to renew or replace the Financing Agreements prior to the 
expiration dates of such Financing Agreements.  The Company is continuing to 
evaluate alternative sources of financing to replace all or a portion of its 
financing arrangements with MSDW.  If the Company were unable to reach a 
satisfactory agreement with MSDW for the renewal or the replacement of the 
Financing Agreements, the Company believes it would be able to meet its 
financial requirements over the next twelve months from other sources.

  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 at 
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 and the Purchase Agreement with 
The Associates.

  Cash flows from operating activities resulted in net proceeds of cash of 
$85.3 million and $38.2 million for the six months ended June 30, 1998 and 
1997, respectively. 

  Cash flows from investing activities primarily consist of the growth/decline 
in credit card programs and short-term investments.  Such investing activities 
resulted in net proceeds of cash of $163.3 million and $216.4 million for the 
six months ended June 30, 1998 and 1997, respectively.  The net principal 

                                        14
<PAGE>
collected on credit card loans, representing the difference between payments 
received from cardholders and sales made using the cards, provided cash of 
$165.2 million and $228.9 million for the six months ended June 30, 1998 and 
1997, respectively.

  Cash flows from financing activities primarily consist of borrowings and 
deposits.  Such financing activities resulted in net uses of cash of $249.5 
million and $244.7 million for the six months ended June 30, 1998 and 1997, 
respectively.  Amounts due to affiliated companies resulted in net uses of cash 
of $304.1 million and $275.4 million for the six months ended June 30, 1998 and 
1997, respectively, partially offset by interest-bearing deposits which 
resulted in net proceeds of cash of $52.4 million and $35.8 million for the six 
months ended June 30, 1998 and 1997, respectively.  At June 30, 1998 and 1997, 
the Company had cash equivalents of $13.8 million and $25.1 million, 
respectively.


INTEREST RATE RISK

  The Company's matched financing strategy targets 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 both 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 
with notional amounts of $426.9 million and $459.5 million at June 30, 1998 and 
1997, respectively.

  At June 30, 1998, the Company had no interest rate cap agreements.  At June 
30, 1997, the Company had outstanding interest rate cap agreements with 
notional amounts of $10.0 million.

  At June 30, 1998 and 1997, the Company's interest rate swap agreements had 
maturities ranging from July 1998 to December 2000, and from October 1997 to 
December 2000, respectively.


YEAR 2000 COMPLIANCE

  Many of the world's computer systems and applications currently record years 
in a two-digit format with the century assumed to be 1900.  Consequently, they 
will be unable to properly interpret dates beyond the year 1999, which could 
lead to business disruptions (the "Year 2000" issue).













                                        15
<PAGE>
  The Company has established a Year 2000 Project Team to develop and manage a 
company-wide compliance process.  Based upon current information, the Company 
estimates that company-wide Year 2000 expenditures for 1998 through 1999 will 
be approximately $12 million.  Costs relating to this project are being 
expensed by the Company during the period in which they are incurred.  The 
Company's expectations about future costs associated with the Year 2000 issue 
are subject to uncertainties that could cause actual results to differ 
materially from what has been discussed above.  Factors that could influence 
the amount and timing of future costs include the success of the Company in 
identifying systems and programs that contain two-digit year codes, the nature 
and amount of programming and testing required to upgrade or replace each of 
the affected programs, the rate and magnitude of related labor and consulting 
costs and the success of the Company's external parties in addressing the Year 
2000 issue.


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

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

Item 2.  Changes in Securities.- None.

Item 3.  Defaults Upon Senior Securities.- None.
 
Item 4.  Submission of Matters to a Vote of Security Holders.- None.

Item 5.  Other Information.- None.

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

(a) Exhibits.

    11.0 Computation of Earnings per Common Share.

    27.0 Financial Data Schedule.

(b) Reports on Form 8-K.

      A Current Report on form 8-K, dated July 29, 1998, 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 April 21, 1998, was filed with the 
Securities and Exchange Commission reporting Item 7 relating to the 
Company's first quarter earnings release.

      A Current Report on form 8-K, dated April 18, 1998, was filed with the 
Securities and Exchange Commission reporting Items 5 and 7 relating to the 
Company's agreement with Associates First Capital Corporation to sell 
substantially all of the assets of the Company to Associates First Capital 
Corporation.






                                        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, 1998              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
-------    -----------------------

  11.0     Computation of Earnings per Common Share

  27.0     Financial Data Schedule


                                          18