Payment Data Systems Reports Second Quarter Results; Revenue Up 391 Percent From Prior Year Quarter SAN ANTONIO, Aug. 1 /PRNewswire-FirstCall/ -- Payment Data Systems, Inc. (OTC:PYDS) (BULLETIN BOARD: PYDS) today announced financial results for the quarter ended June 30, 2005. Revenues increased 391% to $314,926 for the second quarter of 2005 from $64,202 for the second quarter of 2004. Net loss for the quarter ended June 30, 2005 was $496,531, or $0.02 per share, compared to net loss of $302,949, or $0.01 per share, for the second quarter of 2004. Revenues increased 367% to $557,888 for the six months ended June 30, 2005 from $119,399 for the same period of 2004. Net loss for the six months ended June 30, 2005 was $952,511, or $0.04 per share, compared to net loss of $703,665, or $0.03 per share, for the same period of 2004. Commenting on the increase in revenues, Michael R. Long, Chairman and Chief Executive Officer of Payment Data Systems, said, "We are pleased to report that Payment Data Systems has delivered another quarter of strong results driven by our technological innovations and increased acceptance of our highly effective and quick to implement product solutions. Our credit card transaction volume was up 26% for the second quarter of 2005 and the related dollar volume was up 29% from the first quarter of 2005. As a consequence, we saw revenues for the second quarter of 2005 grow 30% from $242,962 for the preceding first quarter with the growth in credit card processing leading the increase." Long added, "Revenue generated by our merchant customers was approximately 85% of our total revenues in the second quarter of 2005, and we expect the trend of increasing card-based revenues to continue as we build a pathway to profitability." 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.bills.com/ . Bills.com has the ability to transmit electronic payments to thousands of national billers. For additional information, visit http://www.paymentdata.com/ . Contact: Michael Long, Investor Relations, Payment Data Systems, Inc. 210-249-4040. 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. DATASOURCE: Payment Data Systems, Inc. CONTACT: Michael Long, Investor Relations of Payment Data Systems, Inc., +1-210-249-4040 Web site: http://www.paymentdata.com/ http://www.bills.com/

Copyright