Payment Data Systems and KUBRA Data Transfer Sign Multi-Year Referral and Incentive Warrant Agreement

- Agreement Could Generate Up to $45 Million in Annual Gross Revenues -


SAN ANTONIO, Oct. 7 /PRNewswire-FirstCall/ -- Payment Data Systems, Inc. OTC Bulletin Board: PYDS an integrated electronic payments solutions provider and KUBRA Data Transfer, Ltd. announced today that KUBRA has selected Payment Data Systems, Inc. to become its preferred electronic credit/debit card payment processor of choice.

KUBRA is a leading provider of enterprise information solutions with a leading portfolio of Electronic Bill Presentment and Payment (EBPP) customers and processes hundreds of millions of dollars in consumer payments each year.

The partnership provides for both a referral agreement and incentive warrants for a three-year term, renewable thereafter. Under the terms of the referral agreement PDS will become KUBRA's preferred provider of credit/debit card payment processing. PDS will be the preferred payment processor cartridge within KUBRA's comprehensive technology network. The incentive warrant agreement, signed September 30, 2004, is performance-based and provides for both an initial 250,000 warrants -- priced at a premium to market -- and future warrants are earned by KUBRA by referral or transfer of profitable payment processing, from new or existing clients, to PDS.

Additional terms allow for KUBRA to earn warrants through the achievement of yearly or quarterly revenue markers, the top tier of which is leveled at $45,000,000 annual gross revenue or $11,250,000 quarterly gross revenue. Future warrants, unregistered and restricted, are only earned through delivery of tiered gross revenue to PDS and are priced at 120% of the market price when earned. Along with opportunity for dramatic revenue growth as the result of referrals, the incentive warrants provided to KUBRA, upon exercise, create significant additional capital for PDS.

"When PDS was operating Billserv, KUBRA was our most respected EBPP competitor and has subsequently grown their North American business into hundreds of millions of dollars in payment processing each year," said Mr. Louis Hoch, President and Chief Operating Officer.

Hoch added, "If fully implemented, this mutually-beneficial partnership with KUBRA establishes substantial opportunities for revenue growth and access to capital, with little out of pocket expense for either party."

"KUBRA's vision is to be the leading provider for electronic document delivery and settlement, and our new partnership with PDS is a very important pillar of our overall strategy," said Rick Watkin President and CEO of KUBRA. "Based on our experience in working with PDS, we firmly believe they will compliment our core EPP suite of products, and further enhance KUBRA's competitive and leading position in the industries we compete in."

Payment Data Systems intends to file today a Form 8-K with the Securities and Exchange Commission containing details of the agreement and the incentive warrant contract. A copy of which will be available at: http://www.sec.gov .

About KUBRA

KUBRA is a leading provider of enterprise information solutions that create value for its customers in the form of enhanced access to new markets, reduced costs and increased profitability. KUBRA markets a solution portfolio of enterprise information software, outsource solutions and professional services across three comprehensive and integrate divisions that enable companies to create, compose, manage, deliver, process and archive complex, high-volume, individualized information assets for maximizing the customer relationship management potential of each and every customer contact.

For additional information, visit http://www.kubra.com .

About Payment Data Systems, Inc.

Payment Data Systems, Inc., is an Integrated Payments Solution Provider delivering comprehensive, cost-effective solutions to billers and retailers for the processing and management of electronic payments via the Internet, point of sale, or payments taken by Customer Service Representatives or an Interactive Voice Response (IVR).

Additional products available from PDS include services and products that can be implemented more quickly and less expensively than the alternative of adding multiple payments companies as these solutions offer a full range of payment processing capabilities. These service offerings include: one time and recurring ACH debits and credits, electronic lockbox and returned check services, Web pay acceptance of credit cards and checks, telephone pay to Customer Service Representatives for acceptance of credit cards and checks, Interactive Voice Response systems which completely automate the payment receiving process, and data warehousing that enable the storage and retrieval of all payment history from one location.

Payment Data is the owner of the electronic bill payment portal, http://www.billx.com . billx.com has the ability to transmit electronic payments to thousands of national billers.

For additional information, visit http://www.paymentdata.com . Investor information can be found at: http://www.otcfn.com/pyds .

Contact: Geoffrey Eiten, Investor Relations, OTC Financial Network, (781) 444-6100 ext. 613.

Source: Payment Data Systems

FORWARD-LOOKING STATEMENTS DISCLAIMER

Except for the historical information contained herein, the matters discussed in this release include certain forward-looking statements, which are intended to be covered by safe harbors. Those statements include, but may not be limited to, all statements regarding our and management's intent, belief and expectations, such as statements concerning our future and our operating and growth strategy. Investors are cautioned that all forward- looking statements involve risks and uncertainties including, without limitation, the factors detailed from time to time in our filings with the Securities and Exchange Commission. One or more of these factors have affected, and in the future could affect, our businesses and financial results in the future and could cause actual results to differ materially from plans and projections. We believe that the assumptions underlying the forward- looking statements included in this release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. All forward-looking statements made in this release are based on information presently available to our management. We assume no obligation to update any forward-looking statements, except as required by law.

--------------------------------------------------------------------------------