Citibank has won the first major card-issuing contract under the General Services Administration's new commercial card program.

The Department of Veterans Affairs chose Citibank, the nation's leading card issuer, to provide travel, fleet, and purchasing cards for its employees.

The two-year contract is a coup for the Citicorp subsidiary because Veterans Affairs, known as VA, is the second-largest federal agency in terms of spending volume and the largest in number of employees.

The contract represents $2.5 billion in potential spending.

In February the General Services Administration selected Citibank, American Express Co., First Chicago NBD Corp., Mellon Bank Corp., NationsBank Corp., and U.S. Bancorp as approved vendors of commercial card services to government agencies.

The idea was to stimulate competition and innovation as the six banks would be bidding against one another.

Under the previous contracting system American Express and First Bank System-now U.S. Bancorp-issued VA's 50,000 commercial cards. Citibank will take over the business Nov. 30.

American Express, Citibank, and U.S. Bank will be competing for government business across the board-for fleet, purchasing, and travel and entertainment contracts.

NationsBank got the designation for purchasing and T&E, and Mellon Bank and First Chicago for purchasing only.

The VA's was "a very coveted contract," said Cathy Raffaeli, director of Citibank's commercial card division. "The VA is one of the most advanced departments in card solutions and they have an appetite for innovation."

The VA is also one of six federal agencies approved by the GSA to provide administrative services like card processing for other government agencies. The VA earns an income by offering these financial services, but in turn offers lower prices to government agencies through its contracts with banks.

"The volume on our program allows us to offer better pricing," said Martha Orr, financial program manager, Department of Veterans Affairs.

Citibank and the VA are discussing purchasing programs that would allow cardholders to make office purchases on-line using catalogues and electronic malls, said Ms. Raffaelli.

Other projects under discussion include smart card functions like employee identification, computer access control, and stored value payments that can be used at vendors in VA buildings.

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