The decision is the latest in a series of moves by large retailers which are using the strength of their brand names to offer other services. Though M&S denied its decision marks a riposte to rivals, it comes just days after Sainsbury's launched a loyalty card which may be used to offer financial services. Earlier this month Tesco launched ClubCard Plus, a budget account with preferential rates of interest.
M&S said: "This is not a reaction to what the supermarkets are doing. We've had a charge card since 1985 and we now have 5 million members. Our research has shown that a lot of our customers would appreciate this kind of service."
Called Premier Reserve, the scheme offers loans up to pounds 3,000. Customers decide the amount of the loan and are given a cheque book with 10 cheques. When they need to top up their normal bank account, either for a large purchase or because they have gone overdrawn, they write themselves a cheque from the loan account into their deposit account. M&S says it will save on the overdraft charges and appeal to people who normally avoid credit.
The interest rate will be 13.9 per cent APR for loans of pounds 1,000 and over. For loans under pounds 1,000 the rate is 14.9 per cent. The rates will be increased after 1 October to 16.9 per cent and 17.9 per cent respectively.
Robert Snaife, retail analyst at Societe Generale Strauss Turnbull said it was all part of extending the power of the M&S brand name: "It's all part of exploiting their matchless goodwill and get people more bound up with them."
M&S already offers personal loans and outstanding balances now exceed pounds 520m. These loans have been sold relatively discreetly through direct mail.
The company launched its charge card in 1985, and then began offering personal loans and unit trusts in 1988. Last year it started selling PEPs and life assurance. Operating profits from financial services have been improving after a slow start. Last year they reached pounds pounds 61.4m compared with pounds 49m in 1995. More than 600,000 new charge card accounts were also opened last year.
M&S financial services have their own separate head office in Chester. the company has had to expand into a second building to accommodate the growth of the business. It expects to recruit an additional 300 staff. a quarter of M&S UK sales are made through its charge card.
Other retailers which have made the move into financial services include Budgens which launched a Visa credit card last year. Tesco may add further facilities to its ClubCard Plus scheme. Virgin has also launched a PEP and is now expanding into life assurance.