Payment Data Systems Signs Second Consumer Loan Company

  - With this Sale PDS is Now Positioned to Earn Debit Card Related Revenues in Excess of $1,100,000 Over the Next 12 Months-

San Antonio, December 7, 2004 -- Payment Data Systems, Inc. (OTC BB: PYDS) an integrated electronic payments solutions provider, announced today that AAA Payday Cash, LLC., a new entry into the expanding industry of consumer-oriented loans, has selected Payment Data Systems to provide and support stored value cards as a supplement to traditional ACH credits.  This one-year agreement, which automatically renews for one-year terms, immediately provides a total of 55,000 debit cards that PDS has issued to the industry to date.  Additional cards for AAA Payday Loan are expected to follow within months.  

“We are excited to see that the consumer focused loan industry continues to look to PDS for stored value solutions as a method to provide a secure and rapid service on behalf of their customers.  We believe our debit card offering continues to create many other opportunities for this industry, and others, to access a closed loop, private payment system that leverages public ATM and debit networks.  By extension, the private loop capability gives merchants access to new consumer groups and guarantees payments will be delivered without the possibility of chargebacks,” said Mr. Louis Hoch, President and Chief Operating Officer.

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 www.paymentdata.com.

Contact: Michael Long, Investor Relations, Payment Data Systems, Inc. 210-249-4040.

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.

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