A Houston ATM network has learned the hard way that regulators don't move at Internet speed.

While waiting for approval of a charter to start an Internet bank with a new twist - using an ATM network as a springboard to online banking - Momentum Cash Systems has been leapfrogged by American Express Co. and E-Trade Group Inc., which are using the same model.

Momentum, which operates 2,200 ATMs in 28 states, said last fall that it was planning to start an Internet-based bank that would give depositors surcharge-free access to the machines in the network. It is still waiting to see whether its application for a bank charter will be approved.

Meanwhile, American Express and E-Trade, which operate online banks, have been buying up ATMs and networks and pledging to bring the Web and all its power right to the terminal. Industry experts say ATMs are the answer to Internet banks' deposit and surcharge problems and portray them as security blankets for online banking consumers who need a tangible link to the bank.

Momentum Bank plans to add Web-enabled machines to its network. Eventually, the goal is "to deploy thousands, possibly tens of thousands," said Robert B. Cannon, chief executive officer of Momentum Cash.

He said his company is not deterred from opening Momentum Bank SSB, despite the entries of the two giants. Looking on the bright side, Mr. Cannon said he hopes the stature of American Express and E-Trade will help attract consumers to Internet banking.

"The good news is that American Express and E-Trade have validated our business strategy," Mr. Cannon said. "The bad news is it's American Express and E-Trade."

American Express, which has been building its ATM fleet since 1998, made its biggest acquisition in February, buying 4,562 ATMs - all located in 7-Eleven stores - from Electronic Data Systems Corp. of Plano, Tex. American Express machines do not surcharge customers of its online bank, which is called Membership Banking.

E-Trade, which announced plans in March to buy Portland, Ore.-based Card Capture Services Inc., operator of a prominent independent ATM network, has said it would give its E-Trade Bank customers unlimited surcharge-free access to the more than 8,500 ATMs connected with that network.

"We had the idea before Amex and E-Trade came along, but we didn't have the pockets that they have," James D. Stein, Momentum's president, said in a telephone interview.

Mr. Stein, formerly the president of Columbus State Bank in Columbus, Tex., started May 1 and will run the day-to-day operations of the bank side of the business in separate headquarters in Houston. More bankers are to be hired.

Mr. Cannon, who originally expected to receive a charter by April, said he expects to start operating the bank in the next 60 days.

He said Momentum Bank will promote the same competitive advantages that community banks do. "It boils down to service, trust, confidence, convenience," he said.

Momentum plans to offer a standard slate of retail products, as well as electronic bill payment services and a credit card that would be managed through an agent bank relationship. It aims ultimately to offer links to online brokerage and mortgage services.

Momentum owns between 40% and 45% of the machines in its network; merchants own the others. Mr. Cannon said the company has been adjusting merchant contracts to allow Momentum to brand the machines and provide surcharge-free access to the Internet bank's customers. Some contracts have yet to be altered, Mr. Cannon said, but "we don't expect that to be a problem."

Most of Momentum's machines are in Texas, Oklahoma, Louisiana, Arkansas, and Mississippi. Like American Express and E-Trade, Momentum intends to use Internet technology at its ATMs to bring advanced banking functions to convenience stores and other retail locations.

"The whole Internet banking thing in general is really very similar to putting these Web-enabled ATMs in the marketplace. It's going to take the big players to move the majority of people," Mr. Cannon said.

"Being a small company, we're not going to be able to change consumer behavior on a national level," he added. "That's going to take big money and big corporations to really lead the charge, but we certainly hope to be on the heels of that - when we see that happening."

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