In its first big push to offer financial services in the physical world, E-Trade Group Inc. has signed a deal that would make it the country's third-largest owner of automated teller machines.

The market-leading Internet brokerage firm said Monday that it would acquire Card Capture Services Inc., a closely held ATM deployer in Portland, Ore., which owns 8,500 machines in the United States, Canada, and Mexico. E-Trade plans to convert many of the terminals to "financial services kiosks" that would give customers access to all E-Trade products, which include brokerage accounts, mutual funds, and basic banking services. E-Trade bought Telebank, a prominent Internet-only bank, in January. E-Trade's deal follows a path blazed by American Express Co., which swooped in on the ATM market this year by buying more than 4,000 machines from Electronic Data Systems Corp. of Plano, Tex., bringing its total to 8,672. Miffed at being excluded from Visa's and MasterCard's ATM networks, Amex said it would build its own distribution system.

E-Trade of Menlo Park, Calif., and American Express of New York, now have more ATMs than all but one brick-and-mortar bank - Bank of America Corp., which operated about 14,000 machines at midyear 1999. E-Trade says it is not done buying ATMs: Card Capture's machines generate 3.1 million transactions a month, and the new owners are targeting 5 million transactions a month by yearend.

Card Capture has ATMs in Rite Aid Corp. drug stores, Safeway Inc. supermarkets, and other merchant locations. Those machines will be branded by E-Trade, and some may be upgraded to kiosks within 90 to 120 days, said Mitchell Caplan, chief banking officer of E-Trade.

Mr. Caplan said the kiosks will be used to cross-sell all E-Trade services, which could one day include credit cards, debit cards, insurance products, and consumer loans. E-Trade will retain Card Capture's management team.

"You want to be able to penetrate that mainstream banking customer who you know is interested in Internet banking, does not go into a branch ever, but uses an ATM," Mr. Caplan said. Since E-Trade is focusing on international expansion, Card Capture's presence in Canada and Mexico were appealing, he said.

Terms of the deal, expected to close in the spring or early summer, were not disclosed.

E-Trade and Telebank - which this month topped $3 billion in deposits - said the ATM deal overcomes one of the final barriers to the widespread adoption of Internet banking: a physical distribution channel.

Christos M. Cotsakos, chairman of the board and chief executive officer of E-Trade, said in a statement, "As we continue building a powerful on-line financial hub for today's consumers, offering our customers a network of conveniently located ATMs will enable E-Trade to capture a growing share of wallet and continue diversifying our revenue streams."

Industry experts said the deal affirms the new era of financial services convergence. "I think it's a smart move" by E-Trade, said Henry H. McVey, vice president in equity research at Morgan Stanley Dean Witter & Co. "The bottom line is that you need some type of physical branch, particularly for companies that are offering banking services, and this deal clearly gets that for E-Trade."

Observers said American Express and E-Trade are leveraging different strengths. Amex has the conventional brand name, E-Trade, the Internet recognition.

Joanne Fisher, a spokeswoman for American Express, called E-Trade's move good for her company, since it could help consumers get used to using ATMs as advanced banking channels. Last year American Express introduced an Internet banking service called Membership Banking. More recently, it announced a pact with 7-Eleven convenience stores to outfit 200 stores in Texas with ATMs that can cash checks, wire money, and do other advanced applications. Down the line, American Express executives foresee using Web technology at all their ATMs.

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