Payment Data Systems Reports Results for Second Quarter

San Antonio, TX, August 14, 2008 - Payment Data Systems, Inc. (OTCBB: PYDS), an integrated electronic payments solutions provider, today announced financial results for the quarter ended June 30, 2008.

Revenues for the quarter ended June 30, 2008 declined 14% to $659,045 from $761,935 for the second quarter of 2007. Revenues increased 9% to $1,520,790 for the six months ended June 30, 2008 from $1,395,131 for the same period of 2007. Net loss for the quarter ended June 30, 2008 was $491,238 compared to a net loss of $343,101 for the prior year quarter. Net loss for the six months ended June 30, 2007 improved to $179,831 from a net loss of $954,656 for the same period of 2007.

Commenting on the results for the quarter, Michael R. Long, Chairman and Chief Executive Officer of Payment Data Systems, said, “The primary contributing factor to the recent decline in revenues is the loss of our largest credit card processing merchant in the second quarter of this year.  Although this merchant had agreed to renew their processing agreement with us, our sponsoring bank did not approve the renewal so we were unable to continue processing for the merchant. The loss of this customer was mitigated by acquiring twenty-seven new merchant accounts during the second quarter bringing our total number of merchant accounts to 363 at June 30, 2008. 
 
On a positive note, the electronic payments industry continues to experience growth overall, as MasterCard and Visa have reported their card transactions are up 14% and 19%, respectively, and many of our customers are experiencing somewhat similar numbers.  Our own prepaid card revenues experienced a 242% increase over the first half of last year and we have recently implemented several stored value card programs and more will go live within a few weeks and throughout the remainder of the year.  We will soon be announcing the signing and implementation of new card programs that we believe will generate new sales for 2008. We anticipate that our prepaid products will expand into affinity markets in addition to becoming available through new retail distribution channels.
 
Our private labeled bill payment products are beginning to show positive traction as well. We will soon announce new bill payment contract signings that should lead to additional revenue generation throughout the remaining months of 2008.
 
Our prepaid and bill pay product sets will be processed through the technology platforms of FiCentive, Inc. and Zbill, Inc., respectively, and the accumulative impact of their growth should be reflected in the fourth quarter of this year and beyond. The much anticipated branding of FiCentive, our card issuing subsidiary, is near completion and should be rolled out in August. Zbill’s new branding will follow sometime during the third quarter.
 
We are very excited about the prepaid card and bill pay programs as customers are seeing real value and the strategic importance to their business development.  We believe these programs provide us our best opportunity for growth.  We will continue to aggressively pursue the merchant marketplace as well.  New proprietary programs are being developed that will help our customers realize cost savings as we deliver solutions that enhance and streamline their credit card programs and distinguish us in the marketplace.
 
Our portfolio acquisition strategy is beginning to gain real strength as we have engaged a firm that is experienced and well connected in the payments space.  We are truly excited and positive that fund raising for acquisitions as well as the corporate expansion of PDS should move forward rather swiftly.  It is our plan to complete at least one acquisition before the end of this year.”
 
For further information regarding our financial results for the second quarter of 2008, please read our Quarterly Report on Form 10‑Q for the quarter ended June 30, 2008, which was filed today.

About Payment Data Systems, Inc.
 
Payment Data Systems is an integrated payment solutions provider to merchants and billers. The organization provides an extensive set of products to deliver world-class payment acceptance. Payment Data has solutions for merchants, billers, banks, service bureaus and card issuers. The strength of the company is its ability to offer specifically tailored solutions for card issuance, payment acceptance and bill payments.
 
Payment Data is the owner of the electronic bill payment portal, http://www.billx.com, which has the ability to transmit payments to thousands of national billers.
 
Payment Data Systems Inc. (OTCBB: PYDS) is a registered ISO/MSP of MetaBank and a registered ISO/MSP and TPS/TPP of Merrick Bank Corp., South Jordan, UT. 
 
Payment Data’s intellectual property includes a perpetual license of U.S. Patent Number 7,021,530 that relates to bill payments made with debit and stored value cards.
 
Payment Data holds the exclusive license to market the Natalie Gulbis Gift MasterCard (www.nataliegulbismastercard.com.
 
For additional information, visit www.paymentdata.com. Contact Michael Long for Investor Relations information at 210.249.4040 or email at ir@paymentdata.com.
 
Website: http://www.paymentdata.com