* Revolution Money targets being in 3 mln stores by 2011

* No IPO or putting itself up for sale before 2011

By Phil Wahba

NEW YORK, April 6 (Reuters) - Revolution Money, an online payment firm backed by AOL co-founder Steve Case, said on Monday it has received funding of $42 million from a group that includes a Goldman Sachs (GS.N: Quote, Profile, Research) affiliate and earlier investors Citigroup (C.N: Quote, Profile, Research) and Morgan Stanley (MS.N: Quote, Profile, Research).

Revolution Money, part of Washington-based Revolution LLC, competes with EBay Inc's (EBAY.O: Quote, Profile, Research) PayPal service in peer to peer money transfers, and offers a credit card.

The company will use the money to beef up its technology and help retailers promote the credit card, with a view to reaching 3 million retailers by 2011 despite tumbling U.S. retail sales, chairman Ted Leonsis told Reuters.

"We see more rapid adoption of our service as merchants fight in this economy for more margin from sales," said Leonsis, who owns the National Hockey League's Washington Capitals.

Revolution Money estimated its RevolutionCard credit card is accepted at about 650,000 locations in the United States including those of bookseller Barnes & Noble Inc (BKS.N: Quote, Profile, Research), upscale grocer Whole Foods Market Inc (WFMI.O: Quote, Profile, Research) and department store chain Nordstrom (JWN.N: Quote, Profile, Research).

Leonsis said Revolution competes with PayPal by letting users transfer funds to one another for free and with major credit card issuers, such as Visa Inc (V.N: Quote, Profile, Research) MasterCard Inc (MA.N: Quote, Profile, Research) and American Express Co (AXP.N: Quote, Profile, Research) by offering competitive interchange fees for merchants.