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CREATION FINANCIAL SERVICES LIMITED (“CREATION”): INITIAL
SUBMISSION
Full text with excisions
22 April 2004
CONTENTS
1. Company Background
2. The Market
3. Supplier/Retailer Relationships
4. Barriers to Entry and Ease of Switching
5. Products and Pricing
6. Information Available to Consumers
7. Creation’s Capital Structure and Financing
8. Additional Information
9. Summary
Appendix 1: Creation’s History, Organisation and Financial Structure
Appendix 2: Example of a Summary Box
The Company
1.1 Details of Creation’s history, organisation and financial structure are given in
Appendix 1.
1.2 Creation operates solely in the UK, though its affiliates operate in other EU
member states (see Appendix 1).
1.3 The principal activities of Creation are the provision and operation of:
1.3.1 store cards, i.e. running-account credit cards which enable
customers (i.e. cardholders) to make purchases from relevant
retailers up to a credit limit (usually £[ ]) and then repay all or
part of the balance on the card account each month;
1.3.2 personal loans, either as fixed-sum or running-account credit; and
1.3.3 various additional products or services for customers, including:
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(a) cash advances on store cards (including foreign exchange);
(b) CPP (Cardholder Protection Plan) card protection insurance
against loss or theft of cards;
(c) payment protection insurance (“PPI”) which (i) insures
monthly payments in relation to the card if the customer
becomes unemployed, ill or dies; (ii) provides cover against
loss or theft of or damage to goods purchased using the
store card; and (iii) provides price protection i.e. if the
purchase price of a product is reduced within 60 days of
purchase, the customer can reclaim the difference (less an
excess of £5); and
(d) travel insurance.
2 The Market
2.1 Creation operates within the UK consumer credit market. Consumers have
a wide choice of where to shop and how to pay for their purchases.
Creation’s products are among many options available to consumers in
relation to payment.
2.2 Consumers can pay for retail purchases by a plethora of means, including:
• cash;
• cheque;
• debit cards;
• credit cards (i.e. a Visa card or MasterCard);
• charge cards (i.e. American Express or Diners Club);
• store cards;
• fixed-term credit offers; and
• for certain purchases (e.g. mail order) in instalments.
2.3 Consumers can borrow money from a wide variety of lenders and by a wide
variety of methods, including:
• bank overdrafts;
• secured or unsecured personal loans; and
• cash advances on credit cards or store cards.
An increasing number and range of organisations now offer personal loans,
e.g. The Post Office.
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2.4 There is increasing overlap between credit products as various retailers
(such as Tesco and Sainsbury’s) have chosen to offer co-branded versions
of Visa or MasterCard credit cards and others (such as Marks & Spencer
and GE Consumer Finance) have chosen to convert their store cards into
co-branded versions of Visa or MasterCard credit cards, or, as in the case of
John Lewis, to invite holders of store cards to apply for new co-branded
credit cards.
2.5 Credit cards frequently offer zero or low interest on balance transfers,
including transfers from store cards; these credit card companies compete
directly for business with store cards.
2.6 These factors demonstrate that it is not appropriate to regard store cards in
isolation as a distinct and separate market.
2.7 Creation considers that the UK has a more competitive consumer credit
market than other EU member states, with greater provision of credit from
more lenders, offering more products. One relevant factor is the availability
in the UK of credit reference information from bureaux (such as Experian
and Equifax) which are independent of lenders, which allows entry into the
market. Creation understands that this is not the case in, for example,
France.
2.8 The Competition Commission’s Report on the merger of March UK Ltd and
the home shopping and home delivery businesses of GUS Plc (January
2004) referred at paragraph 4.91 to evidence from Professor Kempson of
the Personal Finance Research Centre that there was a significant increase
in the penetration of credit facilities and credit cards in particular within Great
Britain from 1997 until 2002. The average number of credit facilities per
person used in Great Britain was 2.0 in 1989 and had grown to 3.1 by 2002.
Paragraph 6.114 of the report states that according to NOP: (a) in 1997,
38% of the population had credit cards; by 2002, 48% of the population had
credit cards; (b) in 1997, 30 per cent of the population had overdrafts and
14% had personal loans; by 2002, 51% of the population had overdrafts and
19% had personal loans.
2.9 The OFT’s March 2004 Report on store cards (the “OFT Report”) recognised
that store cards represent approx 2.5% of the total consumer credit market.
This figure would indicate that in general the consumer has (and is aware of)
a high degree of choice in the means by which they can access credit.
2.10 Creation considers that the key selling point to consumers of store cards is
the benefits offered to cardholders, in particular, discounts on first purchase
and subsequent cardholder benefits. The importance of the first purchase
discount is demonstrated by the fact that [ ]% of Creation’s
cardholders are “single spenders”, who will take advantage of the opening
discount (typically 10 or 20% off their first purchase) and then pay off the
balance in full or over [ ], but will not make any further purchases on the
store card. The average first purchase value on a Creation store card is £[
]. This indicates that for many consumers, the key price element in the
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transaction is the sale price of the relevant product, not the interest rate on
the store card.
2.11 The UK consumer credit market is highly regulated, with detailed regulation
covering many aspects of lenders’ business, including:
• licensing;
• the form and content of agreements;
• advertising;
• cancellation rights;
• rights of consumers and termination; and
• frequency and content of statements.
In addition to the statutory framework, there are additional codes such as the
Banking Code and the requirements of the Finance and Leasing
Association.
3 Supplier/Retailer Relationships
3.1 Retailers’ Objectives and Approach
3.1.1 Retailers who operate store card programmes have two key
objectives. The prime objective is the ability to communicate with,
and reward their customers, through loyalty programmes and/or
special offers. The secondary objective is the provision of point-of-
sale credit facilities for their customers. (Examples of opening offers
and loyalty schemes were provided).
3.1.2 Historically, store cards were introduced because retailers found that
the offer of customer accounts/credit in addition to increasing sales
engendered considerable customer loyalty. Retailers wished to
enhance the loyalty of their customers by building up a “club”
concept through additional benefits – discounts, special events,
targeted vouchers, loyalty points, etc., and enhanced customer
service.
3.1.3 Initially, many retailers operated store card programmes in-house.
However, many of those providers did not operate these businesses
as stand alone units and quite often there was no clearly defined
business unit with a true allocation of business costs. Any income
generated by these businesses, therefore, was often taken into the
retailers profit and loss account with costs being absorbed by the
retailer. Retailers often funded these activities out of surplus cash
rather than borrowing from the commercial market. As a result, there
was little relationship between the general credit market and the
associated dynamics and pricing of these products.
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3.1.4 Whilst initially store cards may have provided credit facilities to those
not eligible for credit cards, this has changed over recent years with
the much higher penetration of credit cards (see paragraph 2.8
above). The number of store cards in issue has none the less
remained high as they offer a much wider range of benefits and
service than credit cards. Store cards are as much a loyalty card as
a line of credit and enable the retailer to maintain communication
with its customer base and target specific offers at customers likely
to be interested.
3.1.5 As balances became higher and the business became more
complex, many retailers decided to outsource the provision of this
credit (with suitable safeguards for their customer base) to outside
providers in order to free up the capital employed and management
time for their core businesses. While a few retailers have moved
against this trend (for example GUS) generally retailers are moving
out of the direct provision of credit and outsourcing to third parties.
3.1.6 Retailers nonetheless bind the store card issuers to maintain the
additional customer benefits previously provided by the store and
generally contribute towards marketing spend.
3.1.7 The percentage of turnover that will be taken on the retailer’s store
card can vary dramatically dependent upon numerous factors.
These include:
• the size, depth and maturity of the cardholder base;
• the quality of marketing by the retailer;
• the retailer’s sector and customer profile;
• frequency of purchases by customers; and
• the level of new applications for the store card.
3.1.8 Creation’s clients (i.e. those retailers to whom it provides services)
tend to achieve between [ ]% to [ ]% of their turnover on
their store cards. Creation estimates that a typical split of payment
methods used by a retailer’s customers would be as follows:
Credit Card [ ]
Debit Card/Cheque [ ]
Cash [ ]
Store card [ ]
3.1.9 In the case of Creation’s store card base, the typical cardholder
would use the store card as a short term method of budgeting for
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relatively low cost items rather than as a means of long term
borrowing. Store cards would be one of a portfolio of credit lines
available to the customer. Based on customer applications to
Creation, [ ]% of Creation’s cardholders also hold credit cards.
Creation competes on added value from the special offers and on
brand loyalty to the retailer. Most customers weigh up the advantage
of the initial offer and either pay in full at the end of the interest free
period or over a relatively short time (the average is [ ]) and so
still gain a financial advantage from use of the card. For example, a
customer who opened a Creation store card account, spent £50 and
received a 10% discount (£5) and then paid off the balance in equal
instalments over three months could pay approximately £2.50 in
interest, meaning that the customer still saved £2.50.
3.1.10 Creation store cards are predominantly used in the fashion and
footwear sectors of retail. Given that the average transaction value
on store cards is relatively low ([ ]) and that [ ]% of
Creation’s cardholders pay the balance in full each month, the
Creation store card is not only an alternative to a credit card for
customers, but also to debit cards or indeed cash.
3.2 Creation’s Relationship with Retailers
3.2.1 Creation has two types of relationship with clients. Firstly, with
clients who recruit customers in-store onto their store card
programme (e.g. Adams and JJB Sports) and, secondly, with
retailers or service providers who accept store cards with the DUET
logo (the Creation brand logo) as a payment method (e.g.
Sainsbury's, HMV and National Exhibition Centre Box Office).
Creation store cards that carry the DUET logo are accepted in over
7000 retail and leisure outlets in the UK.
3.2.2 Creation also provides extensive services to its clients in the fields of
data-mining and analysis, direct marketing expertise, campaign
management and in-field support for staff training.
3.3 Suppliers of Store Cards
3.3.1 GE Consumer Finance (UK) (“GECF”)
Datamonitor (UK Plastic Cards 2003, p 149) suggest that GECF has
10m cards and a market share in excess of 45%. However, Creation
believes this number to be understated, given the acquisitions by
GECF of Time Retail Finance in 2002 and First National (at the end
of 2003). Creation believes that the total number of cards GECF
operates is now in excess of 14 million.
GECF’s clients include B&Q, Comet, Debenhams, House of Fraser,
River Island, Laura Ashley, Arcadia [ ], Principles, Hawkshead,
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Bentalls, Kwik Fit, Russell and Bromley, Mothercare, Bhs, Harrods,
New Look, Monsoon, High and Mighty and Toys R Us.
GECF has begun to operate co-branded Visa credit cards with some
retailers, e.g. Debenhams.
GECF is also a major player in the provision of fixed term credit at
point of sale.
3.3.2 Marks and Spencer (“M&S”)
M&S has 6.2 million of its own store cards in issue. It is currently
converting them to credit cards (“& More”) with an estimated 2.6
million switching – source M & S Press Office.
3.3.3 John Lewis / HFC (HSBC)
John Lewis has around 1 million store cards in issue. It initially
operated these itself; but recently outsourced the provision and sold
the portfolio to HFC (now a subsidiary of HSBC) and will be replacing
the scheme with a credit card.
3.3.4 Creation
Creation has [ ] active cards, i.e. store cards on which at least
one transaction has been made within the last 12 months. The total
number of Creation store cards in issue is [ ].
Creation’s clients include [ ].
Sygma Bank UK, a branch of a sister company of Creation, has
recently launched MasterCard credit card products. It has around [
] of these accounts to date.
3.3.5 Style Financial Services (Royal Bank of Scotland)
Creation estimates that Style has 0.5 million cards in issue. Style’s
clients include Moss Bros, Hobbs, D2, Mackays, Ted Baker, Richer
Sounds and FCUK (French Connection).
3.3.6 IKANO Financial Services
Creation estimates that IKANO has 1-1.5 million cards in issue.
IKANO’s clients include Ikea, Habitat, Allders and Oasis, [ ].
3.3.7 Argos Financial Services
Creation estimates that Argos Financial Services has 1 million cards
in issue. Argos Financial Services is the provider of store cards for
two GUS companies: Argos and Homebase.
3.3.8 Store Cards in Issue and Sector Shares
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The following are the figures for store cards in issue as shown by the
Datamonitor survey referred to in paragraph 3.3.1. As indicated
above, Creation believes that some of the Datamonitor figures are
not up to date. Creation has, therefore, given its own estimates,
together with the sector share that these would indicate:
Company Datamonitor Sector Adjusted Adjusted
share* ** sector share*
GECF** 10 m 45%
[ ] [ ]
Marks & 6.2 m 28%
[ ] [ ]
Spencer
John 1.8 m 8%
[ ] [ ]
Lewis
Creation 3m 14% [ ]
[ ]
Argos -
[ ] [ ]
Style -
[ ] [ ]
Other 1m 4.5%
[ ] [ ]
TOTAL 22 million [ ]
* Note – sector shares may not add up to 100% because of
rounding. Sector share refers to store cards only, including store
cards that have converted to credit cards. It does not include retailer
credit cards, such as Tesco or Sainsbury credit cards.
** The Datamonitor figures do not take into account the acquisition
by GECF of Time Retail Finance.
3.4 Creation’s Contractual relationships with Clients
3.4.1 Contract terms are between [ ] and [ ] years, with a notice
period of [ ]. The minimum amount of time before notice can be
served varies from contract to contract. Creation has [ ]
contracts, each of which involved a significant financial investment
by Creation, which necessitated [ ] to achieve an appropriate
return on that investment.
3.4.2 [ ] notice periods are for the protection of the client (i.e. the
retailer) as well as Creation, to allow sufficient time to effect an
orderly exit, implementation of data transfer and handover.
Switching from one supplier to another requires:
• due diligence;
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• a transfer of considerable amounts of data;
• systems compatibility and/or testing;
• trial runs;
• the provision of a call centre with appropriate scripts,
procedures and training;
• insurance contracts;
• notices to customers;
• re-carding customers;
• new marketing materials and design;
• amended terms and conditions; and
• an amended Consumer Credit licence (to add extra or varied
trade names);
It is necessary to ensure that the customer experiences a seamless
transfer from one supplier to the other.
3.4.3 A minimum contract term of [ ] years would be sought for a start-
up store card programme, as this would run at a loss for
approximately [ ]. This is because of the need to recover
investments made by the supplier (e.g. in systems) and because the
costs of opening accounts and issuing cards (approximately £[ ]
per new account) and account processing (approximately £[ ]
per account per year) exceed the income generated in the early
years, as balances build slowly.
3.4.4 Merchant Service Charges (“MSCs”) will be competitive with, or
lower than, charges incurred by retailers on credit cards. [ ].
3.4.5 [ ].
3.4.6 The client will bear the cost of in-store point of sale materials and
discounts/rewards to the cardholder.
3.4.7 Creation will have exclusive rights of supply of store card services for
the term because it would be impractical for the retailer to have more
than one supplier (e.g. in terms of consistency of communication and
brand image) and because of the need for commitment and
partnership between Creation and the client.
3.4.8 Either Creation or the client will own the customer list. If the client
owns the list, Creation will be licensed to use the list for financial
services.
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3.4.9 Retailers are sophisticated and often powerful buyers of services
who are continually demanding and negotiating better deals for
themselves with service providers such as Creation.
3.4.10 Sample contracts have been provided.
4 Barriers to entry and ease of switching
4.1 Over the last ten years or so, the UK consumer credit market and the store
card sector of that market have evolved dramatically. The rate of change
has, if anything, increased in recent months. Key changes include:
4.1.1 some companies have, Creation understands, effectively ceased to
provide store cards (for example Citibank and Yorkshire Bank);
4.1.2 some retailers have moved from internal provision of store cards to
external provision (e.g. John Lewis has moved to HFC Bank (now
part of HSBC));
4.1.3 some retailers or card companies have converted or are converting
store cards to credit cards (e.g. M&S and Debenhams) while others
(e.g. John Lewis) are inviting store card holders to apply for co-
branded credit cards;
4.1.4 some major retailers such as Tesco and Sainsbury’s have launched
their own co-branded credit cards, which are intended to combine
loyalty schemes such as Clubcard and Nectar with a generally
accepted credit card;
4.1.5 some retailers (such as Moss Bros, HMV and Mango) have begun to
offer store cards and have given store card providers the opportunity
to tender for that business;
4.1.6 some retailers have switched their store card providers (e.g. [ ]);
4.1.7 some store card providers and/or lenders have been sold (e.g. Time
Retail Finance and First National Finance have been sold to GECF);
and
4.1.8 there have been two new entrants into the UK store card sector in
the last two years: Argos Financial Services and HFC Bank (now
part of HSBC).
The market is therefore dynamic and evolving.
4.2 Argos Financial Services provides store card products to Argos Retail and to
Homebase (both subsidiaries of GUS Plc). Argos Financial Services could
tender for business outside the GUS group (in terms of having the necessary
infrastructure and resources), but this would be a strategic decision by GUS.
Page 11 of 21
4.3 If a company wished to start issuing and operating store cards, it would need
to invest in systems, call centres, skilled staff to manage operations and
credit management, marketing, and to bear the funding costs.
4.4 Service providers such as Experian, Certegy, Sema, TSys and FDR offer
outsourced systems and operations for retailers. Retailers would require risk
management expertise (i.e. the expertise in deciding to whom and how
much to lend, including the determination of score cards, cut offs and
collection policies) but specialists such as Scorex/Experian and Fair Isaacs
can provide relevant services.
4.5 Outsource providers can provide the necessary infrastructure relatively
easily, but the new entrant would need to attract business from the retail
sector (from retailers starting to offer store cards and/or by persuading
retailers to switch their supplier) and build scale.
4.6 Retailers can and do change their store card supplier, just as they can
change other suppliers, e.g. of merchandise or logistics. There are
operational, technical and regulatory issues to be addressed in switching
store card suppliers, but many of these are outside the control of those
suppliers: for example, legal requirements in relation to the variation of
regulated consumer credit agreements with customers, data protection and
issue of credit tokens. IT systems are more compatible with one another
than was previously the case, which makes data transfer and systems set-
up less difficult than it used to be.
4.7 In order to switch suppliers, retailers would need to allocate sufficient
managerial time and resources to deal with the relevant issues, including
preparing an invitation to tender, drafting and negotiating necessary
contracts, training staff, etc. External consultants or advisers may be
desirable or necessary.
4.8 Creation has won [ ] transfers of business in the last three years ([
]) and has won [ ] start-up store card contracts ([ ]). [ ].
4.9 The competitive tenders which Creation has been involved in over the last 3
years are as follows:
[ ]
4.10 Several of Creation’s contracts with clients have come up for renewal during
the last [ ] years, thereby giving clients the opportunity to switch
suppliers. The outcomes of these renewal opportunities are shown below:
[ ]
5 Products and Pricing
5.1 Creation’s standard store card product is a running-account credit option
account, which has a standard APR of 27.8% (2.071% monthly) for payment
Page 12 of 21
by Direct Debit and 30.9% APR (2.275% monthly) for payment by other
means.
5.2 Cash advances using the store card attract a handling fee of 1.5% (£1.50
minimum) for each transaction. Creation treats cash advances as a
purchase and extends the interest free period (up to 51 days) to customers
in respect of cash advances, unlike other providers who charge interest on
cash advances from the date of the transaction. After the interest free
period, interest is charged on outstanding balances on the card account.
5.3 One of Creation’s clients (USC) provides the option of promotional credit,
whereby 0% APR is applied for a period of 3 or 6 months dependent upon
reaching a threshold spend in one transaction (£120 for 3 months and £165
for 6 months). After the expiry of the promotional period, the interest rate is
charged at the rates detailed in paragraph 5.1 above, on any remaining
balance. Interest only accrues from the end of the promotional period; there
is no backdating to the transaction date.
5.4 Creation offers optional “3D Insurance”, which is PPI (see paragraph 1.3.3
above) plus price protection which covers the consumer if the price of the
good(s) they purchased is reduced within 60 days of the transaction,
allowing them to claim the difference, subject to a £5 excess. 3D Insurance
is charged at £0.99 per £100 of balances, i.e. 0.99% of any balance.
5.5 The Summary Box included in promotional material details pricing and
charges to consumers. An example of a Summary Box is in Appendix 2.
5.6 If customers operate their accounts in accordance with the terms and
conditions of their contract with Creation, they will never be charged a fee.
However, if they fail to pay on time or otherwise fail to comply with their
contract, Creation does impose certain charges. The maximum charges that
can be charged are set out in the terms and conditions. [ ]. The following
is a breakdown of how Creation levies its charges for arrears:
Balance Late Fee Levied*
£5 or less [ ]
Above £5.01 to £15.00 [ ]
More than £15.01 £10.00
Balance Advanced Late Fee Levied**
Up to £50 [ ]
£51 - £100 [ ]
£101 - £500 [ ]
Greater than £500 £22.00
* A late fee is charged automatically when a customer has missed a whole cycle of
payment, i.e. they have missed a month’s payment and have been issued a statement for
the following month without making a payment.
** An advanced late fee is charged when a customer has missed two whole cycles of
payment.
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5.7 [ ]% of Creation’s customers are subject to charges for advanced late
fees.
5.8 Unlike some credit cards, no annual fee is levied on any of Creation’s
accounts (either currently or in the past) and Creation does not envisage that
it will introduce an annual fee on any of its store cards.
5.9 Creation reserves the right in its conditions to levy a £10 charge for
exceeding the credit limit. [ ].
5.10 Creation charges a £10 fee for dishonoured cheques and bounced direct
debits in order to defray administration costs and bank charges.
6 Information available to Consumers
6.1 Copies of all Creation’s marketing materials were supplied.
7 Creation’s Capital Structure and Financing
7.1 Creation’s capital structure is as follows:
7.1.1 Creation is currently owned 100% by Cofinoga SA, which is a French
Limited Company. Creation’s paid up share capital at December
31st, 2003 was £10,000,100.
7.1.2 Reserves – Creation’s reserves represent the accumulated profit and
loss of its ongoing activities. The value of Creation’s reserves at
December 31st, 2003 was £[ ].
7.1.3 [ ]
7.2 Creation also uses or has used the following facilities: [ ]
8 Additional Information
8.1 A notable feature of store cards is customer attrition, whereby customers
apply for a card but use it only to get the initial discount. Creation receives
around [ ] applications for store cards each year, of which around [
] are for instant credit. However, [ ]% of Creation cardholders are
single spenders. They will avail themselves of any opening discount offer,
(typically 10% or 20% off their first purchase) and then pay off the balance in
full or over [ ]. Creation considers that consumers recognise the
benefits offered by store cards and typically use them for short-term
borrowing and indeed for one-time usage.
8.2 Recruiting new customers represents a significant cost to Creation. [ ].
8.3 Creation considers that customer benefits are the main selling points of its
store cards. As well as receiving promotions and offers from their host
retailer, cardholders can avail themselves of numerous offers and discounts
through the monthly DUET magazine and by participating in “Mega Day”
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promotions. For example, Adams Childrenswear, will from time to time,
have 1,2 or 3 day events when any DUET cardholder will save 20% on their
purchases in store using their DUET card. An example of DUET magazine
was provided.
8.4 Customer benefits on store cards are determined by the relevant retailer, not
by Creation. They are subject to the decision of the retailer in the light of
trading conditions and its marketing campaigns at any point in time.
8.5 A number of retailers in the DUET network run loyalty programmes, based
on £1 spend earning 1 point. A £5 voucher will be issued when a threshold
of 100 or 50 points is reached. With double point events and bonus points
on opening an account, this equates to an effective return of between 5%
and 10% for the consumer, which is considerably more generous than the
return they receive on certain other loyalty schemes, e.g. M&S.
8.6 Creation’s customers are not captive, because:
8.6.1 Creation generally includes cancellation notices in all its agreements,
even though they are intended to be signed in-store and would
therefore not be cancellable agreements under the Consumer Credit
Act 1974. Creation prefers credit agreements to be signed in-store
by customers as the customer’s signature can be witnessed by the
retailer’s staff, which helps prevent fraud;
8.6.2 customers do not have to use or continue using their cards;
8.6.3 customers can pay the balance outstanding on their card and
terminate their agreement with Creation at any time; and
8.6.4 customers can (subject to status) transfer the balance outstanding
on their account to a credit card, usually on an interest free basis for
an initial period.
8.7 Creation intends to inform existing cardholders of the details included in the
Summary Box in mailings throughout May, June and July 2004. Creation is
considering revising customer statements to include details of time for
repayment and amount to be repaid if cardholders only pay the minimum
amount each month.
9 Summary
9.1 Creation operates within the UK consumer credit market, which is a highly
competitive and dynamic market. Customers have a wide choice of where
to shop and how to pay. Creation’s products are only a small part of the
payment options available to consumers.
9.2 Store cards are valuable to retailers as a means of increasing customer
loyalty and a vehicle for communication with customers. While the
consumer’s legal relationship is with Creation as a credit provider, their
emotional relationship is with the retailer whose store card they use.
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Creation will only continue to have that relationship if it treats those
consumers in accordance with the retailer’s wishes.
9.3 Creation submits that the movement demonstrated in the business-to-
business sector and the behaviour of cardholders shows that it is a
competitive environment for both the retailer and the consumer. [ ]% of
Creation’s cardholders only use the card for the initial purchase, to take
advantage of the discount and then repay the balance within [ ]
months.
9.4 The competitive environment has changed considerably in recent years, with
new entrants to (and departures from) the store card sector, switching by
retailers, conversion of store cards to credit cards and retailers offering their
own credit cards.
9.5 Switching between suppliers does happen in practice, despite the technical
and regulatory difficulties to be overcome in doing so.
9.6 Retailers are sophisticated and often powerful purchasers who seek to
negotiate improved terms from suppliers such as Creation. However,
exclusivity for a period is necessary to reflect the investments made by the
supplier (e.g. in systems) and the costs of opening accounts and issuing
cards (approximately £[ ] per new account) and account processing
(approximately £[ ] per account per year) which exceed the income
generated in the early years. It would also be impractical for a retailer to
offer competing store cards.
APPENDIX 1: CREATION’S HISTORY, ORGANISATION AND FINANCIAL
STRUCTURE
Page 16 of 21
Creation’s Ownership - LaSer
[ ]
Creation Financial Services
Origins as in-house provider of financial services to Selfridges
Established in early 1980’s as separate company within Sears Plc, providing
storecards for retail companies within the Group
CFS currently have 21 Retail Partners who recruit cardholders onto branded
storecard programmes, generating c 1,000,000 applications per annum
[ ]
The storecards issued by CFS have cross acceptance in all other brands, plus a
selection of other retailers and service providers in what is known as the DUET
network
Key clients: Adams, JJB Sports, USC, Pilot
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LaSer in the UK
Core market for LaSer
Acquisition in 1999 from Sears Plc
• Doubled in size since acquisition
• Significant capital investment
• Flagship international centre of excellence Solihull
Specialist in store cards
More than 1.2 million active customers
DUET network: more than 40 retail labels
• i.e. more than 7000 stores
Spearheading LaSer’s development in retail credit cards
offering customer and retailer choice
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Creation – Part of a Leading European Group
(520) FTE
(188) FTE
France
(240) FTE
UK
(108) FTE
Netherlands
(3500) FTE
Belgium
Spain
(462) FTE
(76) FTE
Italy
(299) FTE
Poland
Portugal
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LaSer Figures
Loyalty
Financial Contact
Pan-European indicators (including Creation) Non POS
10m cards
7m loyalty members
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APPENDIX 2: EXAMPLE OF A SUMMARY BOX
CREATION STORE CARD
Summary Box
The information contained in this table summarises key
product features and is not intended to replace any terms
and conditions
APRs* and other 27.8% APR with payment by Direct Debit
rates
30.9% APR by any other payment method
29.7% APR for Cash Advances paid by Direct
Debit
32.8% APR for Cash Advances paid by any
other method
Monthly rates 2.071% with payment by Direct Debit
2.275% by any other payment method
2.071% for Cash Advances paid by Direct Debit
2.275% for Cash Advances paid by any other
method
Interest free period Up to 51 days when you pay your balance in full
every month by the due date
Allocation of Payments will be allocated in the following
payments order: Interest, costs, charges and expenses,
Cash Advances, insurance premiums, and
Transactions
Minimum £5 or 5% of the balance, whichever is greater
repayments
Fees £0 Annual Fee
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Charges Handling fee of 1.5% (£1.50 minimum) for each
Cash Advance transaction
Travel Money secure delivery fee of £5
Default charges Fee for late payment: £10
Fee for unpaid payment, cheque or Direct
Debit: £10
Fee for one missed payment: £10
Fee for two or more missed payments: £22
Fee for exceeding Credit Limit: £10
*The APR on a credit card explains the total cost of borrowing, of
which interest rates are just one part. Other components include all
the fixed charges such as annual fees and cash advance charges.
Interest is charged in calculation method on handling fee
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