Barclaycard's ?25m offer lures House of Fraser

Department store group House of Fraser has ditched its storecard operator, US-owned GE Consumer Finance, in favour of a deal with Barclaycard which will generate a £25m windfall for the department store chain.

The retailer's decision to switch provider comes as the £5bn-a-year storecard business is under investigation by the Competition Commission. The regulator is considering whether British shoppers, who hold 17m storecards, are being ripped off by high interest rates.

John Coleman, House of Fraser's chief executive, said the deal with Barclaycard would enable the store to offer "new, lower APR products", including a straightforward credit card.

House of Fraser's existing Recognition storecard, which is held by 1.2 million shoppers and used for 40% of House of Fraser purchases, has an APR of 29.6%. The average debt on each card is £350.

Mr Coleman conceded that he was "not very happy" about the bad publicity surrounding storecards but said the switch to Barclaycard had not been prompted by the watchdog's investigation. Mr Coleman said shoppers were smart, and if they thought the cards were a bad deal they would not use them. He added: "I really think it is a storm in a teacup ... The average consumer does not think the way the politicians think."

House of Fraser's deal with GE, which operates half of the UK's storecards, runs until 2007 and the retailer is on a performance deal with the finance house which could generate £2.5m this year, with further potential payments until 2007. Mr Coleman said GE had fought hard to retain the contract "but just could not meet the terms Barclaycard put on the table".

The deal was announced as House of Fraser revealed first-half losses down from £3.9m to £2.5m. Like-for-like sales were flat but margins up and current trading is ahead of last year's levels. The shares added 3p to 120p.

The £25m from Barclaycard will be made in 2005-07, with the first £6m tranche coming next year. Barclaycard will take over in 2007 and split profits 50/50 with the retailer. The new deal, analysts said, should generate some £9m a year profit for House of Fraser from 2007.