Mercantile Bancorp., which snared a much-sought-after deal with Southwestern Bell a year and a half ago to market cobranded credit cards, has abandoned the program.

The St. Louis-based bank said Thursday that the program with the telephone company had been too costly. In its place, the bank unveiled a rewards program designed to generate interest income by targeting people who carry balances on their cards.

"Southwestern Bell wanted as many cardholders as possible, and we wanted to be profitable," said W. Randolph Adams, chairman and chief executive officer. "Our objectives just did not match."

Mercantile, an $18.2 billion-asset bank and the 35th-largest issuer of MasterCard and Visa cards, found out the hard way that having a big partner does not always mean successful cobranding.

"Banks need to come to terms with their profitability and do what they need to sustain it," said K. Shelly Porges, chief executive of Porges/Hudson Marketing Inc., San Francisco. Now is a good time for banks to revisit their cobranding deals and make sure the results are what they expected, she added.

Industry observers said Mercantile may have entered the market at the wrong time, though gobbling up regional Bell card programs was an industry craze at the time.

"They entered when the market was going through radical changes," said Robert B. McKinley, president of RAM Research Group, Frederick, Md. "Credit quality has been deteriorating, and there has been a shift of consumer behavior to more convenience use."

Despite racking up 500,000 accounts in 18 months, Mercantile reported a loss of $9.5 million on the card program. The problem was that cardholders were not paying interest charges because they would pay off balances in full each month.

Other issuers have run into similar problems with so-called "convenience users." One, GE Capital, instituted a $25 annual fee on its GE Rewards cardholders who pay bills in full each month.

Mercantile's Mr. Adams said the program's demise was due more to the reward structure than to its timing.

The no-fee Southwestern card offered a 1% cash rebate on purchases, a 5% rebate on Southwestern Bell telephone bills, and interest rates up to 9.4 percentage points above prime.

"We fine-tuned the reward structure several months ago, but our profit problem turned out to be more severe than we had thought," Mr. Adams said. He added that it would have been too disruptive to the program to impose an annual fee.

Southwestern decided to end its involvement in the program because of recent changes in the credit card industry, said Brian Posnanski, spokesman for SBC Communications.

Industry speculation, however, pointed to a merger of the Southwestern Bell program with a cobranded card offered by Pacific Telesis Group and Household International, Prospect Heights, Ill.

Earlier this year San Antonio-based SBC Communications, which owns Southwestern Bell, acquired Pacific Telesis, a San Francisco regional phone company that operates Pacific Bell.

Household would probably be interested in an alliance with Southwestern, said Ms. Porges. "Household has the most experience when it comes to telecom cobranded programs," she said. Household also issues a cobranded card for Ameritech, the regional bell in Chicago.

Household would not comment on Mercantile's announcement, or the status of its Pacific Bell program.

Observers said that the relationship between Mercantile-Southwestern was excellent, but not enough research was done and profit expectations were too high.

Ms. Porges said Southwestern Bell cardholders could put their phone bills on the card, which caused more people to pay the bill in full because people didn't want their phone service turned off.

"Mercantile has obviously learned their lesson with their new rebate program," which is designed to attract revolvers, said Ms. Porges.

Beginning in January, the 500,000 holders of the Southwestern Bell Visa will have the option to take the bank's new rebate card, MercRewards Visa.

The new MercRewards Visa card has an annual fee of $50 for convenience users with a classic card, and $75 for those with a gold. Cardholders who revolve balances do not have to pay a fee.

The card offers up to 2% cash rewards on purchases and a 5% cash reward on finance charges. The interest rate for the new card, will remain the same as the Southwestern card - 6% to 9.4% above the prime rate.

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