Press Release

SAN ANTONIO, TX February 25, 2005 - Payment Data Systems, Inc. (OTC Bulletin Board: PYDS - News) an Integrated Payments Solution Provider, announced today that it has signed a multi-year agreement with nii communications, Ltd., a rapidly growing provider of integrated telecommunications products and services for small businesses.

This is the first entry of PDS into the rapidly growing telecommunications industry. The products that nii has chosen from us include IPS*CSRView, a web based application which allows their Customer Service Representatives to accept and enter ACH or Credit Card payments taken from their customer over the telephone, IPS*Re-Debit Express, a process for handling and recovering NSF checks and electronic returns, IPS*Credit Card Gateway, a web based application which allows for uploading/processing and reporting of batch loaded recurring credit card payments. The anticipated initial transactional value of the agreement is approximately $12 million per year based on current volumes.

Louis Hoch, President and COO of Payment Data Systems stated, “We are delighted to be chosen as the payment processing provider for NII communications. We don’t believe we could have a more ideal partner than NII as we enter into the telecommunications industry. During its six-year period of continuous growth nii Communications has earned the respect of competitors, customers, and the industry. We believe that with the quality reputations of both companies, we will be provided opportunity to expand our access to other telecommunications providers.”

“NII is not only looking forward to the bottom-line advantages of partnering with PDS, but also to the intrinsic scalability and top-of-the-line professional support associated with their product suite. Through our relationship with PDS, NII’s customers will have access to a wide array of payment options including the use of state-of-the-art technologies that will help to differentiate our company from our competitors,” said Ken Melley, Vice President of Market Development.

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.

About NII Communications, Ltd.

NII communications, Ltd., is a San Antonio, Texas-based UNE-P CLEC offering local exchange, long distance and internet access services to small and medium business customers, residential subscribers and private payphone service providers throughout Texas, California, Arkansas, and Oklahoma. NII's bundled communications products are simple, straightforward and easy to understand, and are designed to represent a significant value to its customers. NII is in its sixth year in the telecommunications industry and is a solid business partner to customers representing over 73,000 access lines today.

For more information, go to www.niicommunications.com.

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.