Hoping to leverage its physical assets in the virtual world, one of the largest nonbank deployers of automated teller machines is starting an Internet bank.

Momentum Cash Systems has a sizable presence in the convenience business, deploying its machines in corner stores, gas stations, truck stops, office buildings, and fast food restaurants.

Now the company plans to launch Momentum Bank SSB as soon as it gets its bank charter, which it expects in March or April. Robert B. Cannon, the 46-year-old chief executive officer of the Houston-based company, said Momentum's independent network of 2,000 ATMs will set it apart from other on-line banks.

"We will be the only Internet bank with a retail delivery system in the market," Mr. Cannon said. "Consumers are growing more comfortable with the security of banking over the Internet and we're filling in the last piece of the puzzle with surcharge-free ATM access."

Matthew P. Lawlor, chairman and chief executive officer of the Internet banking software provider Online Resources & Communications Corp. of McLean, Va., said an ATM network is "a step in the right direction" for an Internet-only bank.

"Any step toward giving that consumer a local option, be it a branch or be it a local ATM machine … is an advantage," he said. Also important is that Momentum's network will give its customers a chance to avoid ATM fees - a problem many Internet banks have addressed by reimbursing customer charges.

Still, Mr. Lawlor said, "It's an uphill battle being an Internet bank." While Internet-only banks can be very successful serving the still small number of consumers who favor them, "the mass market ultimately needs both the comfort of the branch as well as the power and the convenience of the Internet," he said.

Momentum, founded in 1994 when the off-premises ATM market had just begun to take off, has machines in 28 states but is heavily concentrated in Texas, Oklahoma, Louisiana, Arkansas, and Mississippi. The company plans to begin deploying two or three Internet-enabled ATMs in February.

Internet bank customers typically have to mail deposits or rely on direct deposit or interbank transfers. While Momentum ATMs do not currently take deposits, once the bank is up and running Momentum plans to install a couple dozen deposit-taking machines in Texas.

The company is also in the process of getting certified to process its own ATM transactions, a move that Mr. Cannon said will allow the company to quickly respond as the marketplace demands more exotic products like stored value, payroll, and smart cards. Momentum plans to bring its own processing business in-house, and hopes to become a vendor for other nonbank and bank deployers.

Marketing itself as a "one-stop interactive portal for financial services," Momentum hopes ultimately to offer links to on-line brokerage and mortgage services on its Web site. Mr. Cannon, who helped start Momentum while running his own accounting firm, also envisions the bank acting in a fiduciary role on the Internet.

"On personal property transactions above a certain dollar amount and where there are titles involved, there needs to be an intermediary, which holds the money subject to receiving and accepting the item that was purchased," he said.

Momentum, which is licensing its financial services software from a Canadian company, SLMsoft.com Inc., plans to immediately offer a standard slate of retail products as well as electronic bill payment services. Soon after, the bank will begin issuing its own credit card, which would be managed through an agent bank relationship, Mr. Cannon said.

Momentum plans to make its machines major marketing tools, using on-screen advertising, signage, and coupons. The company will invest in local media campaigns in the Houston, Dallas, and Austin/San Antonio areas to start.

Mr. Cannon said 700,000 to 800,000 transactions flow through Momentum machines per month. Customers pay $1.50 to use these ATMs, and they will be reminded that they could avoid a fee if they became customers of the bank.

"When there were only four or five [Internet banks], we had three or four call us about our ATM network and they wanted to brand the machines with their bank name and allow their customers surcharge-free access," Mr. Cannon said. "It really validated the thinking that this indeed is the missing link."

Steven Karp, senior associate at First Annapolis Consulting of Linthicum, Md., said the ATMs are a definite advantage, something he would suggest companies like Charles Schwab and E-Trade should think about. But working against Momentum is the lack of a widespread footprint. "In the long run, to make his concept work, he has to have ATMs everywhere," Mr. Karp said.

Momentum has its sights set on tripling its ATM base by yearend 2001, and Mr. Cannon aims to have 50,000 bank accounts within the next three years. "We're very excited," he said. "We see the stars lining up in our favor, and we're going to take a shot at it."

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