Payment Data Systems Reports Results for Third Quarter

Payment Data Systems, Inc. (OTCBB: PYDS), an integrated electronic payments solutions provider, today announced financial results for the quarter ended September 30, 2008.

Revenues for the quarter ended September 30, 2008 declined 21% to $667,362 from $841,171 for the third quarter of 2007. Revenues for the nine months ended September 30, 2008 decreased 2% to $2,188,152 from $2,236,302 for the same period of 2007. Net loss for the quarter ended September 30, 2008 was $369,927 compared to a net loss of $397,204 for the prior year quarter. Net loss for the nine months ended September 30, 2007 improved to $549,758 from a net loss of $1,351,860 for the same period of 2007. The improvement from the prior year period was primarily due to the sale of certain bill payment patents in January 2008 for a gain of $750,000.

Commenting on the results for the quarter, Michael R. Long, Chairman and Chief Executive Officer of Payment Data Systems, said, “Although our revenues increased from the second quarter this year, our third quarter results were impacted by the previously reported loss of our largest credit card processing merchant in the second quarter of this year. Despite the decrease in comparable revenues, our gross margins increased from both the prior year quarter and period due to the growth of our higher margin card issuing business. We recently announced several new deals with regard to our issuing operations and are encouraged by the continued prospects for growth in that area.”

For further information regarding our financial results for the third quarter of 2008, please read our Quarterly Report on Form 10-Q for the quarter ended September 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.

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.