Fiserv Inc. said it has reached an agreement to acquire the check processing business of Alltel Information Services Inc., one of its top rivals in bank technology outsourcing.

Milwaukee-based Fiserv said it will acquire Alltel Information's Document Management Services division, which employs about 550 people in facilities in California and New Jersey.

Financial terms were not disclosed in the companies' announcement on Monday.

Alltel Information, a Little Rock-based subsidiary of the telecommunications company Alltel Corp., is making what amounts to a hasty retreat from the item processing business. It built that third-party service around the acquisitions of the check clearing operations of two Federal Home Loan Banks in 1991 and 1992. It also purchased the check processing operation of Glendale Federal Bank in 1994.

Like their banking industry customers, the processing companies face a relentless consolidation trend. This is especially true in third-party check processing, where massive scale and market reach are keys to success.

After taking a $32 million writedown in late 1994 that was partially attributed to its check processing business, Alltel officials evidently decided they could not compete with the likes of Fiserv and Electronic Data Systems Corp., the two largest companies in the field.

Fiserv currently processes more than 2.4 billion checks a year nationwide, company officials said. Alltel Document Management Services processes about 370 million "prime pass" items annually.

The volume of Plano, Tex.-based EDS exceeds 2.5 billion checks worldwide, a company spokesman said. The Nilson Report, a payments industry newsletter, has estimated that 61 billion checks were written in the United States last year.

"Volume-related services such as check processing benefit greatly from economies of scale - benefits which in turn can be passed on to the client," said George D. Dalton, Fiserv chairman and chief executive.

"Fiserv has built an extensive network of specialized item processing centers to take advantage of these economies, and we look forward to the enhancements the addition of the DMS team will bring," Mr. Dalton said.

He said he expects to close the purchase next month.

The Alltel division currently provides retail check processing and corporate lockbox services to more than 200 banks and thrifts. Most are community banks, but the customers include larger check clearers such as $16 billion-asset Glendale Federal and $36 billion-asset Republic Bank of New York.

"Having announced several months ago that the item processing business did not support our long-term strategy, we have been pursuing ways to ensure that our customers continue to receive the services they require," said Collins Andrews, president of the financial services division of Alltel Information.

Fiserv officials said the acquired business has check-sorting centers in Piscataway, N.J., Los Angeles, Alameda, Calif., and Walnut, Calif.

The New Jersey operation uses check processing equipment from Unisys Corp., while the West Coast facilities use systems from International Business Machines Corp.

Adding the IBM-based centers will bring "a new dimension" to Fiserv's item processing services, Mr. Dalton said. The company currently uses Unisys check-sorting hardware in its 30 facilities across the country.

At the same time, Fiserv can take advantage of some obvious synergies, Mr. Dalton added. For example, both Alltel and Fiserv have been working with Unisys to provide check-image processing services, where digitized electronic pictures of paper checks are sorted and encoded.

While experts say check-image systems can significantly improve back- office efficiency, they are also expensive to install, often costing tens of millions of dollars per processing site. This is one reason some big banks are now looking at outsourcing their check operations - an idea that once would have been viewed as heretical.

For example, Chase Manhattan Corp. farmed out to Fiserv its New York State operations earlier this year in a 12-year, $480 million deal, and Wells Fargo & Co. is said to be negotiating with both EDS and Fiserv to outsource its huge item processing operation.

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