Alltel Information Services Inc. is discussing the possible sale of part of its check processing business with as many as five other bank processors.

The Little Rock, AR, outsourcing firm, formerly called Systematics, scuttled an imaging project at its New Jersey site last year, forcing its parent company to take a $32 million write-off against its 1994 earnings. In March, Alltel canceled its exhibit at the Bank Administration Institute's check processing conference in Atlanta, and in recent months has not been actively bidding for new business, according to two competitors--FIserv Inc. president Les Muma, as well as an executive at EDS Corp. who asked not to be identified.

Alltel chairman John Steuri says the company is by no means sure it will sell the check business, but it has put out feelers to potential buyers and received inquiries from most of its competitors. The group includes EDS, FIserv, Affiliated Computer Services Inc., Global Processing Alliance--the joint venture between First Fidelity Bancorp. and Bankers Trust New York Corp.--and Transys, the check processing unit of CoreStates Financial Corp. of Philadelphia. Formal negotiations have not yet begun with any of these entities, Steuri said.

If Alltel decides to sell part of the business, it will almost certainly keep the processing contracts it has for Republic New York Corp., run out of the New Jersey site, and Bank of the West, which is processed in California. Alltel does other data processing work for Republic at another New Jersey site, and it does not wish to disrupt its relationship with the money center bank. The most likely scenario is that Alltel will sell its check processing contracts for more than 100 community banks in New York and another 100 in California.

Those smaller contracts have apparently been the nub of the firm's problem. Alltel installed imaging equipment in late 1993 from Unisys Corp., but after running into repeated problems throughout last year, it removed the imaging components and returned to a conventional check system at the end of 1994.

Steuri said that while imaging technology has lowered costs in check proof-of-deposit work at a handful of large institutions, it has actually raised costs when used for processing a large number of small banks. The technology seems best suited for processing one continuous run for a large bank, he said. The problems were centered in balancing accounts for the many community banks Alltel processes. While Steuri acknowledged that Alltel lost money on its check business last year, he would not say if the operation is profitable now. The unit is performing much better, but Alltel has considered leaving the business because the margins are so narrow.

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