NEW YORK (CNN/Money) - In a further sign of consolidation in the online brokerage industry, E*Trade has agreed to acquire rival Harrisdirect from BMO Financial Group for $700 million in cash.

The deal will boost E*Trade's customer assets to about $130 billion, and the company will gain about 430,000 active customer accounts with an average balance of more than $70,000. More importantly, the deal offers E*Trade the opportunity to cross-sell its banking products to Harrisdirect's customers.

E*Trade has been expanding the banking side of its business; last quarter, only about 19% of E*Trade's revenues came from commissions from its online brokerage business. Analysts say in the wake of drab equity markets, consumers are now looking to other areas for investments, such as real estate. As a result E*Trade has been forced to diversity its revenue stream.

"This deal is about a lot more than what it appears on the surface. We get some really high value customers with a $70,000 average account balance; that's twice the E*trade customer's average balance," said R. Jarrett Lilien, president and chief operating officer of E*Trade Financial. "Even in the E*Trade customer base, those with larger account sizes are the ones that tend to engage the most with us, and they are looking for more than trading. We are optimistic that there is a lot of cross-sell value. E*Trade is about more than trading, and so is this deal."

Through the deal E*Trade will also gain $32 billion in assets, $5 billion in cash, $1 billion in margin debt balances and about 15,000 trades a day.

The deal furthers the trend of consolidation that began when E*Trade made overtures to Ameritrade earlier this summer about a takeover. Ameritrade subsequently announced plans to acquire online brokerage shop TD Waterhouse.

Analysts expect E*Trade to do another deal in the near term.

"While it wasn't cheap, the deal makes a lot of sense, and I'd expect at least one more in next six months to a year," said Richard Herr, an analyst at Keefe, Bruyette & Woods, Inc. Herr pointed out that E*Trade has $725 million in free cash, but the company financed the deal with only $250 million in cash, with the remaining $450 million coming from debt. That leaves E*Trade with some money for future acquisitions, he said.

"We thought consolidation made sense three years ago," said E*Trade COO Lilien. "It's been a little frustrating that there hasn't been more consolidation. When we launched our discussions with Ameritrade, our feeling going in was even if we didn't get that deal, we will have started the consolidation phase that we thought was the right thing for this industry. We expect to see more consolidation; we are keeping powder dry and we are in talks with people."

Herr said E*Trade has a different acquisition strategy than other online brokerages, with a much higher focus on the amount of assets the target company has, as opposed to the number of trades it conducts.

Said Seth Dadds, and analyst at Garp Research Corporation who personally owns shares of E*Trade, "You've only really got a few big players left in the online brokerage space. What this particular deal means to E*Trade is that they can get access to some longer term investors and also accounts that have higher asset value per account than the typical E*Trade account, so this is really geared towards their long-term strategy."

Dadds pointed to the company's E*Trade Complete product, which is a consolidated account that brings together banking and brokerage services for clients, as an example of where E*Trade can cross-sell its banking products to Harrisdirect's brokerage customers.

E*Trade said the transaction is expected to bring pre-tax operating synergies of approximately $186 million, composed of $114 million from cost cutting and $72 million from additional revenues. E*Trade expects the deal to generate $0.17 earnings per share in accretion after the takeover is complete.

Once the deal closes, E*Trade Financial will have more than four million customer accounts and will increase daily average revenue trades to about 130,000. The firm will also gain marketing rights to over 300,000 additional customer accounts.

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Keefe Bruyette & Woods' Herr does not own shares of E*Trade, but his firm either expects to receive or intends to seek compensation for investment banking services from E*Trade Financial: ET during the next three months. Garp Research Corporation does not own shares of E*Trade, nor does it have banking ties to the company, but Dadds personally owns shares of E*Trade.