In a move that could draw countless credit card customers away from banks, Sears, Roebuck and Co. is quietly asking its customers to convert its private-label cards - which can be used only at Sears stores - to general-purpose MasterCards.

Sears is already the largest issuer by far of private-label cards, and its $26.79 billion card loan portfolio is larger than those of some of the biggest bank card issuers - including Bank of America Corp., Providian Financial Corp., Capital One Financial Corp., and FleetBoston Financial Corp.

Indeed, Sears is already seventh in the nation in credit card receivables. The aim of its MasterCard program is to bring it into the top four - and to compete directly with such companies as Citigroup Inc., MBNA Corp., and Bank One Corp.'s First USA division.

In a test project that began four years ago, the Chicago retail giant issued MasterCard cards to 200,000 of its customers. In June it began sending a direct mail campaign to about five million more.

Kevin Keleghan, president of credit services at Sears, said 45% of the card customers it solicited had not used their cards in the past year. Fifty percent had used it but did not revolve a balance.

When used at Sears, the new card gives consumers extra benefits - such as discounts on purchases.

Sears' brand name, loyal customers, and 63,000 private-label accounts make its MasterCard effort look like a formidable challenge to other bank card issuers. People who carry multiple cards might be happy to consolidate them on a Sears MasterCard.

Ironically, industry experts say the company with the most to fear from the Sears program is Discover Financial Services, the card subsidiary of Morgan Stanley Dean Witter & Co. Sears founded the Discover card but sold it in 1993 to Dean Witter.

"You've got to wonder how much of an ill effect [the Sears program] will have on the Discover card program," said David Robertson, president of The Nilson Report, a card industry newsletter in Oxnard, Calif. "Sears is going to go after the same customers that Discover has, and Sears is going to offer them something Discover cannot," a solid relationship with a store.

Though the credit card industry was born from private-label cards, the business has been lackluster for decades, as general-purpose cards have nudged dedicated store cards out of wallets.

Store card portfolios are notorious for having large percentages of idle accounts on the books - for example, 24,100 of Sears' accounts are inactive. Visa, MasterCard, American Express, and Discover cards are much more likely to be used regularly.

Sears' dominance in private-label cards shows how tough the business is. Target Corp., the second-largest issuer, has only $2.68 billion of credit card receivables, roughly one-tenth of Sears', according to The Nilson Report. (Those numbers represent only retailers that manage their card programs in-house. Many retailers outsource their private-label programs to such companies as GE Card Services, Household Corp., and Associates First Capital Corp.)

Though some Sears customers will be allowed to keep their private-label cards, some are getting the MasterCards without asking for them. Sears has sent notices to some cardholders that say, "Here's your new Sears Gold MasterCard card - it automatically replaces your existing Sears Card."

Mr. Keleghan said the MasterCard program was introduced as a way to jump-start the company's card business - but not to replace private-label cards entirely.

"The last year to 18 months we've had flat receivables," he said. "We feel we needed to diversify our product set, and we want to compete on a national basis with the very large bank issuers."

Using new data mining technology, Sears has selected about 20 million more customers who have barely used their Sears card in the last year as its next target market for the MasterCard. This group of customers has about $100 billion of outstanding debt on their bank cards, Mr. Keleghan said.

"If we could get them to flip that over to the Sears MasterCard, we could have significant receivables growth," he said.

The company has been conducting extensive market research, and most respondents said they liked the perks of having a Sears card, but wanted to carry fewer cards in their wallet and get greater utility from each card, Mr. Keleghan said.

"Our customers said, 'I really want to do business with Sears, but I need more functionality than you've given me in the past,'" he said.

When the card is used at Sears, the transaction is processed through the store's private-label network by Total System Services Inc., the card processing subsidiary of Synovus Financial Corp. When the card is used elsewhere, it runs on the MasterCard International network.

The lowest-priced MasterCard product offers consumers a 9.9% fixed annual interest rate for Sears purchases and a floating rate in the midteens for all other purchases. Sears MasterCard holders receive the same benefits as the private-label customers, such as sale announcements and 0% financing on certain appliances.

Before yearend the retail giant plans to begin sending direct mail solicitations for its cards to people beyond its customer base. Sears will offer a variety of products, including its plain-vanilla private-label card, its Sears Premier card, and different versions of the MasterCard.

"We plan to be very competitive, and that's why we are diversifying our portfolio," Mr. Keleghan said. "We're going to have a payment product that meets your need."

To fuel its expansion plans, Sears is also bulking up on talent in its credit card division. Mr. Keleghan said he has been recruiting bank card executives from Citigroup and First USA. He came to Sears from AT&T Corp., where he was part of the team that launched its Universal card. He also spent five years at American Express Co.

Sears, the granddaddy of Main Street value retailing, has always counted on its successful private-label cards to boost earnings. But as interest rates and other gimmicks became prevalent in the bank card industry, the portfolios of private-label programs at Sears and other companies have diminished.

Other retailers are taking similar steps. Nordstrom Inc. has been issuing Visa cards since 1994, and Federated Department Stores Inc. issues Visa cards tagged with its different store brands, such as Bloomingdale's and Macy's, on a limited basis.

But industry experts say only Sears has the volume and clout to threaten bank issuers.

Dennis Shea, managing director at Auriemma Consulting Group in Westbury, N.Y., said Sears has a good chance of building a substantial general-purpose card business.

"Sears has credit card relationships with probably more consumers in America than most," Mr. Shea said. "They've been extremely successful in the credit business, and they're probably capable of doing the things they've said they're going to do."

Mr. Robertson said credit has been as significant a part of Sears' history as appliances.

"Revenue generated from credit has kept Sears afloat in the darkest hours of retail," he said. "What they're doing now is recognizing that. They do credit every bit as well if not better than they do merchandising."

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