<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 March 31, 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 April 30, 1997, the Registrant had 27,205,109 shares of common stock, 
$0.01 par value, outstanding.


                                                            Page 1 of 16 pages




















<PAGE>

PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements


SPS TRANSACTION SERVICES, INC.

CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
                                                    March 31,      December 31,
                                                       1997           1996
                                                   ------------    ------------
                                                    (Unaudited) 
<S>                                                <C>             <C>
ASSETS:
  Cash and due from banks                            $   19,552     $   15,205
  Investments held to maturity - at amortized cost       55,759         41,675
  Credit card loans                                   1,498,421      1,637,507
  Allowance for loan losses                             (84,394)       (88,397)
                                                     ----------     ----------
    Credit card loans, net                            1,414,027      1,549,110
  Accrued interest receivable                            19,270         21,141
  Accounts receivable                                    35,369         42,202
  Due from affiliated companies                           3,967          9,900
  Premises and equipment, net                            26,241         25,294
  Deferred income taxes                                  37,272         38,266
  Prepaid expenses and other assets                      17,060         17,992
                                                     ----------     ----------
TOTAL ASSETS                                         $1,628,517     $1,760,785
                                                     ==========     ==========
LIABILITIES:
  Deposits:
    Noninterest-bearing                              $    4,353     $    9,012
    Interest-bearing                                    474,188        454,423
                                                     ----------     ----------
  Total deposits                                        478,541        463,435
  Accounts payable, accrued expenses and other           51,486         50,019
  Income taxes payable                                   12,177         17,756
  Due to affiliated companies                           831,706        982,547
  Accrued recourse obligation                            22,636         22,636
                                                     ----------     ----------
    Total liabilities                                 1,396,546      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; 27,252,659 and    
    27,242,207 shares issued; 27,202,273 and 
    27,187,462 shares outstanding at March 31, 1997
    and December 31, 1996, respectively                     273            272
  Capital in excess of par value                         81,247         81,096
  Retained earnings                                     151,736        144,345
  Common stock held in treasury, at cost, $.01
    par value, 50,386 and 54,745 shares at March 31,
    1997 and December 31, 1996, respectively             (1,242)        (1,312)
  Stock compensation plan                                   483            453
  Employee stock benefit trust                             (483)          (413)
  Unearned stock compensation                               (43)           (49)
                                                     ----------     ----------
    Total stockholders' equity                          231,971        224,392
                                                     ----------     ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $1,628,517     $1,760,785
                                                     ==========     ==========

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
                                                                 March 31,
                                                            ------------------
                                                             1997        1996 
                                                            -------    -------
                                                               (Unaudited)
<S>                                                         <C>        <C>
Processing and service revenues                             $75,309    $74,330
Merchant discount revenue                                     3,138      7,844
                                                            -------    -------
                                                             78,447     82,174

Interest revenue                                             64,076     55,952
Interest expense                                             20,382     22,643
                                                            -------    -------
  Net interest income                                        43,694     33,309
Provision for loan losses                                    31,711     26,472
                                                            -------    -------
  Net credit income                                          11,983      6,837
                                                            -------    -------

Net operating revenues                                       90,430     89,011

Salaries and employee benefits                               29,523     24,200
Processing and service expenses                              28,327     26,671
Other expenses                                               20,541     20,341
                                                            -------    -------
  Total operating expenses                                   78,391     71,212
                                                            -------    -------

Income before income taxes                                   12,039     17,799
Income tax expense                                            4,648      6,764
                                                            -------    -------
Net income                                                  $ 7,391    $11,035
                                                            =======    =======

Net Income per Common Share                                 $  0.27    $  0.41
                                                            =======    =======

Weighted Average Common Shares 
  Outstanding                                                27,197     27,117


See notes to unaudited consolidated financial statements.


</TABLE>














                                          3
<PAGE>
SPS TRANSACTION SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                                March 31,
                                                         ----------------------
                                                           1997          1996
                                                         --------     ---------
                                                              (Unaudited)
<S>                                                      <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                             $  7,391     $ 11,035
  Adjustments to reconcile net income to
    net cash flows from operating activities                                  
  Depreciation and amortization                             3,294        3,467
  Imputed interest on notes payable                            --           15
  Provision for loan losses                                31,711       26,472
  Deferred income taxes                                       994       (1,363)
  (Increase) decrease in operating assets:
  Cash and due from banks - restricted                         --       29,000 
  Amounts due from affiliated companies                     5,933       (5,198)
  Accrued interest receivable and accounts receivable       8,704          922 
  Prepaid expenses and other assets                           677          425 
  Increase (decrease) in operating liabilities:
  Accounts payable, accrued expenses and other              1,584       (5,861)
  Income taxes payable                                     (5,579)       3,919
  Due to affiliated companies                               2,743        7,163
  Accrued recourse obligation                                  --         (410)
                                                         --------      -------
    Net cash from operating activities                     57,452       69,586 
                                                         --------      -------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Investments held to maturity - purchases                (56,084)     (52,746)
  Investments held to maturity - maturities                42,000       47,750
  Net principal collected (disbursed) on credit 
    card portfolios                                       101,905      (15,934)
Purchases of premises and equipment, net                   (2,519)      (1,905)
                                                         --------     --------
    Net cash from investing activities                     85,302      (22,835)
                                                         --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net decrease in noninterest-bearing deposits             (4,659)      (3,849)
  Net increase in interest-bearing deposits                19,765       14,052
  Due to affiliated companies                            (153,584)     (49,289)
  Repayment of notes payable                                   --       (2,110)
  Proceeds from exercise of stock options                       1          411
  Change in treasury stock, net                                70          925
                                                         --------     --------
    Net cash from financing activities                   (138,407)     (39,860)
                                                         --------     --------

Increase in cash and due from banks                         4,347        6,891
Cash and due from banks, beginning of period               15,205        8,879
                                                         --------     --------
Cash and due from banks, end of period                   $ 19,552     $ 15,770
                                                         ========     ========



See notes to unaudited consolidated financial statements.

</TABLE>













                                         4
<PAGE>
SPS TRANSACTION SERVICES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTH PERIODS ENDED MARCH 31, 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 73.6% 
majority owned subsidiary of NOVUS Credit Services Inc., which in turn is a 
wholly owned, direct subsidiary of Dean Witter, Discover & Co. ("DWD").  

  On February 5, 1997, DWD and Morgan Stanley Group Inc. announced a definitive 
agreement to merge.  The new company will be named Morgan Stanley, Dean Witter, 
Discover & Co.  The transaction, which is expected to be completed by mid-1997, 
is subject to certain regulatory approvals and the approval of shareholders of 
both companies.
  
  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 March 31, 1997, and the Consolidated 
Statements of Income and Cash Flows for the three months ended March 31, 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 reported amounts in the financial statements. 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 transfers of 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 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.  For the three 
months ended March 31, 1997, both basic and diluted EPS would have been $0.27.  
For the three months ended March 31, 1996, basic EPS would have been $0.41, 
while diluted EPS would have been $0.40.


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
                                                                 March 31,
                                                            ------------------
                                                              (In Thousands)
                                                             1997        1996
                                                            -------    -------
<S>                                                         <C>        <C>
Balance, beginning of period                                $88,397    $63,704
Additions:
  Provision for loan losses                                  31,711     26,472

Deductions:
  Charge-offs                                               (41,361)   (30,646)
  Less: recoveries                                            5,647      6,722
                                                            -------    -------
  Net charge-offs                                           (35,714)   (23,924)
                                                            -------    -------
Balance, end of period                                      $84,394    $66,252
                                                            =======    =======
</TABLE>
  At March 31, 1997, there were $74.2 million in loans past due 30 days through 
89 days, and $56.8 million in loans past due 90 days through 179 days.

  Credit card loans were reduced by $580.0 million at both March 31, 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 $26.7 million at March 31, 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 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 and type of customer contacts processed through service activities such 
as customer billing inquiries, dispatch services, technical help-desk inquiries 
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 9, 1997, the Company announced that Thomas C. Schneider, 59, has been 
elected Chairman of the Board of Directors. Schneider succeeds Philip J. 
Purcell, who will remain on the Company's Board.

  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. He is also 
Executive Vice President and Chief Financial Officer of Dean Witter, Discover & 
Co. When the proposed merger of DWD and Morgan Stanley Group Inc. is completed, 
Schneider will be Chief Strategic and Administrative Officer of the new 
company, Morgan Stanley, Dean Witter, Discover & Co.

  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 and Corporate Development duties. 

  On February 5, 1997, DWD and Morgan Stanley Group Inc. announced a definitive 
agreement to merge.  The new company will be named Morgan Stanley, Dean Witter, 
Discover & Co.  The transaction, which is expected to be completed by mid-1997, 
is subject to certain regulatory approvals and the approval of shareholders of 
both companies.






























                                         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
                                                                March 31,
                                                            Period-to-Period
                                                         ---------------------
                                                          1997    1996  Change
                                                         ------  ------ ------
  <S>                                                    <C>     <C>    <C> 
  NET OPERATING REVENUES:
  Processing and service revenues                          83.3%  83.5%   1.3%
  Merchant discount revenue                                 3.4    8.8  (60.0)     
  Net credit income                                        13.3    7.7   75.3
                                                          -----  -----                                                            
                                                          100.0  100.0    1.6

  OPERATING EXPENSES:
  Salaries and employee benefits                           32.7   27.2   22.0
  Processing and service expenses                          31.3   30.0    6.2
  Other expenses                                           22.7   22.8    1.0
                                                          -----  -----  
                                                           86.7   80.0   10.1

  Income before income taxes                               13.3   20.0  (32.4)
  Income tax expense                                        5.1    7.6  (31.3)
                                                          -----  -----  

  Net income                                                8.2%  12.4% (33.0)%
                                                          =====  =====  
</TABLE>

  Net income for the three months ended March 31, 1997 was $7.4 million, a 
decrease of $3.6 million, or 33.0%, over the same period a year ago.  Net 
income per common share for the three month period was $0.27, compared to $0.41 
in the prior year's first quarter.                                      

  Net operating revenues for the first quarter of 1997 grew to $90.4 million, 
an increase of 1.6% over the same period last year. The increase in net 
operating revenues resulted primarily from an increase in net interest income 
and processing and service revenues partially offset by an increase in 
provision for loan losses expense and a decrease in merchant discount revenue. 
                                         
  Processing and service revenues increased 1.3% to $75.3 million for the three 
months ended March 31, 1997, as compared to $74.3 million for the same period 
last year.  Processing and service revenues, representing 83.3% and 83.5% of 
net operating revenues for the three months ended March 31, 1997 and 1996, 
respectively, consisted of the following:
<TABLE>
<CAPTION>
                                                             Three Months Ended
                                                                   March 31,
                                                             ------------------
                                                                (In Thousands)
                                                               1997       1996 
                                                             -------    ------- 
                                                                 (Unaudited)
  <S>                                                        <C>        <C>
  Transaction processing services                            $24,462    $21,434
  Managed programs                                            23,395     23,121
  HSB programs                                                14,019     11,640
  Servicing fees on securitized loans                         13,433     18,135
                                                             -------    -------
                                                             $75,309    $74,330
                                                             =======    =======


                                         9
<PAGE>
SUPPLEMENTAL INFORMATION
Components of Servicing Fees on Securitized Loans

</TABLE>
<TABLE>
<CAPTION>
                                                             Three Months Ended
                                                                   March 31,
                                                             ------------------
                                                                (In Thousands)
                                                               1997       1996 
                                                             -------    ------- 
                                                                 (Unaudited)
  <S>                                                        <C>       <C>
  Processing and service revenues                            $ 4,529   $ 3,634
  Merchant discount revenue                                    1,121     1,066
  Interest revenue                                            28,071    30,283
  Interest expense                                            (8,154)   (8,479)
  Provision for loan losses                                  (12,134)   (8,369)
                                                             -------   -------
  Servicing Fees on Securitized Loans                        $13,433   $18,135
                                                             =======   =======
</TABLE>
  The increase in revenues from transaction processing services resulted 
primarily from the addition of new clients and increased revenue per customer 
contact processed in our TeleServices business as well as increased revenues 
from the sale and servicing of point-of-sale terminals and a higher volume of 
Network Transaction Services point-of-sale transactions processed.  The number 
of TeleServices customer contacts processed totaled 2.4 million, down 7.7% from 
2.6 million in the same period in 1996.  However, the decrease in the number of 
customer contacts was offset by an increase in revenues per customer contact 
processed.  For the three months ended March 31, 1997, the number of point-of-
sale transactions processed totaled 101.9 million, up 4.8% from 97.2 million in 
the same period in 1996.  The increase in revenues from Managed programs 
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 was due to an 
increase in late fee revenue resulting from a higher level of credit card loan 
delinquencies, coupled with changes in late fee terms initiated in 1996.  The 
decrease in servicing fees on securitized loans was due primarily to a higher 
rate of credit losses on securitized loans.

  Merchant discount revenue decreased 60.0% to $3.1 million for the three 
months ended March 31, 1997, as compared to $7.8 million for the same period 
last year. The decrease in merchant discount revenue resulted from decreased 
sales activity and from the deferral of $2.3 million of merchant discount 
revenues in the first quarter of 1997 related to interest deferred promotional 
payment plans.  As of March 31, 1997, $5.9 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 
3.4% and 8.8% of net operating revenues for the three months ended March 31, 
1997 and 1996, respectively.

  For the three months ended March 31, 1997, net credit income increased 75.3% 
to $12.0 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 resulted primarily from the 
amortization of $5.7 million of deferred merchant discount revenue into 
interest income during the first quarter of 1997 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 decrease in interest 
expense was due to a decrease in average borrowings due to a decrease in credit 
card loans, coupled with lower interest rates on borrowings. The increase in 
the provision for loan losses 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 post-holiday paydowns during the first quarter of 
1997 and from the Company's portfolio improvement program 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 increased to 9.09% in the first 
quarter of 1997 from 6.35% in the first quarter of 1996, however, the 

                                         10
<PAGE>
Company did experience a sequential decline in delinquency rates from December 
31, 1996 to March 31, 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 could experience a higher net charge-off rate for the full 
year 1997 as compared to 1996.  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 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 March 31, 1997, total operating expenses of $78.4 
million represented an increase of 10.1% over the same period last year.  Total 
operating expenses as a percentage of net operating revenues rose to 86.7% for 
the three months ended March 31, 1997, as compared to 80.0% for the same period 
a year ago.

  For the three months ended March 31, 1997, salaries and employee benefits 
totaled $29.5 million, an increase of 22.0% from $24.2 million from the same 
period a year ago. The Company added approximately 856 additional full-time 
equivalent employees since March 31, 1996. Nearly all of these new employees 
were assigned to field processing facilities to address increased collection 
efforts and to provide for increased TeleServices training and activities. 

  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 March 31, 1997, such expenses 
rose to $28.3 million, or 6.2% on a period-to-period basis. The increase in 
processing and service expenses resulted from a higher volume of transactions 
processed and increased expenses associated with private label services and 
TeleServices.  Processing and service expenses as a percentage of net operating 
revenues increased to 31.3% for the three months ended March 31, 1997, as 
compared to 30.0% 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 March 31, 1997 and 1996, other expenses totaled $20.5 
million and $20.3 million, respectively.  The slight increase in other expenses 
resulted from increased collection expenses, administrative expenses and 
occupancy expenses, offset by decreased merchant marketing incentives expense.  
Other expenses were 22.7% and 22.8% of net operating revenues for the three 
months ended March 31, 1997 and 1996, respectively.




                                         
                                         11
<PAGE>
  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>
                              March 31, 1997          March 31, 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   $1,593,771  $2,173,771  $1,633,261  $2,221,466  $1,512,986  $2,095,026
Period-end credit card 
loans                       $1,498,421  $2,078,421  $1,611,376  $2,191,376  $1,637,507  $2,217,507

Net charge-offs as a % of 
average credit card loans         9.09%       8.93%       6.35%       6.26%       7.82%      7.66%

Accruing loans contractually 
past due as to principal and 
interest payments
  30-89 days                      4.95%       4.71%       5.05%       4.81%       4.97%      4.88%
  90-179 days                     3.79%       3.61%       3.10%       3.01%       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 
DWD.

  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 DWD, and generally have a maturity of two to 10 years.  
As of  March 31, 1997, CDs outstanding were $474.2 million, of which 
institutional CDs represented $221.0 million and retail CDs represented $253.2 
million.

  HSB maintains a loan securitization program with Receivables Capital 
Corporation ("RCC"), and at March 31, 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 March 31, 1997, outstanding 
loans sold under such program were $300.0 million.  At March 31, 1997, $580.0 
million or 27.9% of the HSB Program loans had been sold through loan 
securitizations.









                                         12
<PAGE>
  The RCC loan securitization program, which was scheduled to expire in April 
1997, has been amended so that it now expires June 30, 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 DWD guarantee 
(which provided credit support in the transaction) and its replacement with a 
funded cash account.  Funding for this cash 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 following the expiration dates of 
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 the applicable 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 DWD, pursuant to which DWD has agreed to 
provide financing to the Company.  DWD and the Company have agreed in principle 
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 April 30, 1997, the Company had $812.8 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 DWD.

  Cash flows from operating activities resulted in net proceeds of cash of 
$57.5 million and $69.6 million for the three months ended March 31, 1997 and 
1996, respectively. 

  Cash flows from investing activities for the three months ended March 31, 
1997 resulted in net proceeds of cash of $85.3 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 
($101.9 million), partially offset by investments in short-term U.S. Treasury 
bills resulting in net uses of cash ($14.1 million).  Cash flows from investing 
activities for the three months ended March 31, 1996 resulted in net uses of 
cash of $22.8 million, primarily consisting of net principal disbursed on 
credit card loans ($15.9 million) and from investments in short-term U.S. 
Treasury bills resulting in net uses of cash of $5.0 million.

  Cash flows from financing activities for the three months ended March 31, 
1997 resulted in net uses of cash of $138.4 million, primarily consisting of a 
net decrease in borrowings due to affiliated companies ($153.6 million), 
partially offset by a net increase in interest-bearing deposits resulting from 
the issuance of jumbo certificates of deposit ($19.8 million). Cash flows from 
financing activities for the three months ended March 31, 1996 resulted in net 
uses of cash of $39.9 million, primarily consisting of a net decrease in 
borrowings due to affiliated companies ($49.3 million) and from final payments 
made on short-term notes payable with Tandy Corporation ($2.1 million), 
partially offset by a net increase in interest-bearing deposits resulting from 
the issuance of jumbo certificates of deposit ($14.1 million).  At March 31, 
1997 and 1996, the Company had cash and cash equivalents of $19.6 million and 
$15.8 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.


                                         13
<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 
$460.8 million and $746.3 million at March 31, 1997 and 1996, respectively.

  At March 31, 1997 and 1996, the Company had $10.0 million and $40.0 million 
of interest rate cap agreements, respectively. At March 31, 1997, the current 
variable rates on all interest rate cap agreements exceeded the specified cap 
rates.

  At March 31, 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 March 31, 1997, the Company's interest rate cap 
agreement had a maturity of September 1997.  At March 31, 1996, the Company's 
interest rate cap agreements had maturities ranging from February 1997 to 
September 1997, respectively.
























                                         14
<PAGE>
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.

  Some of these lawsuits and proceedings arise in jurisdictions such as Alabama 
that permit punitive damages disproportionate to the actual damages alleged.  
In light of the uncertainties inherent in any litigation, no assurances can be 
given as to the ultimate outcome of these lawsuits and proceedings.  However, 
the Company and its subsidiaries believe that there are meritorious defenses 
for all of these claims and are defending them vigorously.

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.

    10.1 Third Amendment to the Amended and Restated Borrowing Agreement dated 
as of January 31, 1997, between the Company and DWD.

    10.2 Amended and Restated Credit Card Receivables Purchase Agreement dated  
         as of April 15, 1997, among HSB, the Company, SPS, DWD and Societe  
         Generale.

    27.0 Financial Data Schedule

(b) Reports on Form 8-K.

      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 January 23, 1997, was filed with the 
Securities and Exchange Commission reporting Item 7 relating to the 
Company's fourth quarter earnings release.

  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.















                                        15
<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:  May 13, 1997                 By:/s/ Russell J. Bonaguidi
       ------------                 -----------------------------------
                                    Russell J. Bonaguidi
                                    Vice President and Controller (Duly
                                    Authorized Officer and Principal
                                    Accounting Officer)















































                                         16
<PAGE>
EDGAR
Exhibit    Description of Exhibits
-------    -----------------------

 10.1      Third Amendment to the Amended and Restated   
           Borrowing Agreement dated as of January 31, 1997, between the    
           Company and DWD.

 10.2      Amended and Restated Credit Card Receivables Purchase Agreement  
           dated as of April 15, 1997, among HSB, the Company, SPS, DWD and  
           Societe Generale.

 27.0      Financial Data Schedule