================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-K

                |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1997
                                       OR
              |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from to
                         Commission File Number 1-14350

                         MONEYGRAM PAYMENT SYSTEMS, INC.
             (Exact Name of Registrant as Specified in Its Charter)

                   Delaware                            84-1327808
         (State or Other Jurisdiction               (I.R.S. Employer
       of Incorporation or Organization)          Identification No.)

           7401 W. Mansfield Avenue
              Lakewood, Colorado                         80235
   (Address of Principal Executive Offices)            (Zip Code)

       Registrant's telephone number, including area code: (303) 716-6800

           Securities registered pursuant to Section 12(b) of the Act:

                                                  Name of Each Exchange on
              Title of Each Class                     Which Registered
    ---------------------------------------        -----------------------
    Common Stock (par value $.01 per share)        New York Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: None

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

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes  |_| No

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|

      Common shares of the registrant outstanding at March 20, 1998 were
16,513,800. The aggregate market value, as of March 20, 1998, of such common
shares held by non-affiliates of the registrant was approximately $219,243,000.
(Aggregate market value estimated solely for the purposes of this report. This
shall not be construed as an admission for the purposes of determining affiliate
status.)

                       Documents Incorporated By Reference

Part III: Portions of the Registrant's Proxy Statement relating to the Annual
Meeting of Stockholders to be held on May 5, 1998.

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<PAGE>

                         MONEYGRAM PAYMENT SYSTEMS, INC.

                         1997 ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS

                                     PART I
                                                                            Page
                                                                            ----
Background

Item 1.  Business ...........................................................  2

Item 2.  Properties .........................................................  7

Item 3.  Legal Proceedings ..................................................  7

Item 4.  Submission of Matters to a Vote of Securityholders .................  7

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder
         Matters ............................................................  8

Item 6.  Selected Financial Data ............................................  9

Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations .............................................. 12

Item 7A. Quantitative and Qualitative Disclosures About Market Risk ......... 14

Item 8.  Financial Statements and Supplementary Data ........................ 15

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure ............................................... 15

                                    PART III

Item 10. Directors and Executive Officers of the Registrant ................. 15

Item 11. Executive Compensation ............................................. 15

Item 12. Security Ownership of Certain Beneficial Owners and Management ..... 15

Item 13. Certain Relationships and Related Transactions ..................... 15

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ... 15
<PAGE>

BACKGROUND

      MoneyGram Payment Systems, Inc. (the "Company" or "MoneyGram") was
incorporated as a subsidiary of Integrated Payment Systems Inc. ("IPS"), a
wholly owned subsidiary of First Data Corporation ("First Data"), in January
1996 to acquire certain assets and liabilities of IPS' consumer money transfer
service business marketed under the name "MoneyGram" ("the Business").

      On June 12, 1995, First Data entered into a merger agreement with First
Financial Management Corporation ("FFM"), the parent company of Western Union
Financial Services, Inc. ("Western Union"). In order to obtain the approval of
the Federal Trade Commission ("FTC") of its merger with FFM, First Data entered
into a "Consent Decree" with the FTC that required First Data to divest the
sales and marketing functions associated with the consumer money transfer
business of the Company or Western Union.

      Following the signing of the Consent Decree, First Data decided to divest
the sales and marketing functions associated with the Business. Pursuant to that
decision and a Hold Separate Agreement, which First Data had entered into with
the FTC, First Data identified those operations and functions necessary to
operate the Business as a stand-alone entity, reconfigured the shared customer
service center and commenced the separation of information and services related
to the Business within IPS's data center in anticipation of contributing certain
assets and liabilities to the Company and consummating a public offering ("IPO")
of the Company's Common Shares ("Common Shares"). The IPO occurred on December
11, 1996.

      To effect the transition of the Business to the Company (the
"Transition"), First Data and the Company entered into the following agreements:

      1. Contribution Agreement. Pursuant to this Agreement, IPS and/or certain
of its affiliates contributed to the Company (a) $12 million for general
corporate purposes, (b) certain software, copyrights and trademarks, (c) the
economic benefit of the agreements with the Business' agents, (d) the customer
service center operations, (e) the leasehold interest in the Lakewood, Colorado
premises, and (f) certain other personal property, all related to the Business.
In exchange, the Company issued and delivered to IPS 16,624,900 Common Shares.

      2. Operations Agreement. Under this Agreement, IPS or its affiliates
performed for the Company data processing services, management services,
disaster recovery services for the Company's Lakewood, Colorado customer service
center, voice center services and certain corporate support services. The
management services included those functions that IPS must perform in order for
the Business to be in compliance with applicable licensing and other legal
requirements until such time as the Company had obtained the licenses to own and
operate a consumer money transfer service in its own name.

      3. Software License Agreement. Pursuant to this Agreement, IPS granted to
the Company a perpetual, irrevocable, worldwide, nonexclusive, royalty-free
license to use certain application software in the Business or for any other
purpose. Certain software used by MoneyGram agents who enter transactions
electronically, and application software used to process all MoneyGram
transactions, were contributed to the Company pursuant to the Contribution
Agreement.

      4. Short-Term Working Capital Facility (the "Facility"). Pursuant to the
Facility, which terminated on June 13, 1997, the Company had a revolving line of
credit of $20 million provided by First Data.

      5. The Service Mark Letter Agreement. Pursuant to the Service Mark Letter
Agreement, the Company, First Data and Western Union have agreed not to sue each
other in respect of the service marks "The Better Way to Wire Money", "Wire
Money in Minutes", "Money in Minutes" and certain other similar phrases, whether
in English or another language, during the two-year period commencing December
11, 1996. The Service Mark Letter Agreement also provides that, at the option of
the Company at any time during such two-year period, Western Union, IPS and the
Company will execute a License Agreement and the Service Mark Letter Agreement
will then terminate.


                                        1
<PAGE>

            If executed, the License Agreement provides that Western Union will
grant to the Company a non-exclusive and royalty-free license to use "The Better
Way to Wire Money" and "Money in Minutes Worldwide" in English and certain other
languages (but not Spanish) in certain countries, always accompanied by the word
"MoneyGram", and to use "Wire Money in Minutes" in the United States in English,
always accompanied by the word "MoneyGram". The Company would relinquish to
Western Union any rights it may have in, and will be prohibited from otherwise
using, these marks, as well as other specified marks Western Union uses. Western
Union would covenant not to use "The Better Way to Wire Money" in English in
certain countries, including the United States.

      6. Human Resources Agreement. This Agreement, among First Data, IPS and
the Company, defined the duties, obligations and liabilities of First Data and
IPS and the Company with respect to the transition of employees from First Data
and IPS to the Company.

      7. Telecommunication Services Sharing Agreement. This Agreement, which
expires in December 1998, between First Data and the Company, provides that
First Data shall cooperate and use reasonable efforts to facilitate the
provision of telecommunication services to the Company under First Data's
agreements with its various long-distance telecommunication service providers.
This Agreement permits the Company to choose among such long-distance providers
and to benefit from First Data's tariff rates. The Company, in exchange, has
agreed to use the telecommunication services provided by First Data's
telecommunication service providers exclusively for all of the Company's
person-to-person telephone calls.

      On March 1, 1998, having received all required money transfer licenses,
the Company converted the operation of the Business from IPS' licenses to its
own. Consequently, all but certain accounting and processing services provided
pursuant to the Operations Agreement have been terminated. Those terminated
services are now provided by the Company or third parties. In addition, on March
1, 1998 all money transfer agent agreements were assigned to the Company by IPS.

ITEM 1. BUSINESS.

Overview

      The Company is a leading non-bank provider of consumer money transfer
services, with a strong, well-recognized brand name. It offers customers the
ability to transfer funds quickly, reliably and conveniently through its
approximately 22,000 agent locations in 105 countries worldwide. MoneyGram
targets its services to individuals without traditional banking relationships,
expatriates who send money to their country of origin, traditional bank
customers in need of emergency money transfer services, tourists without local
bank accounts and businesses that need rapid and economical money transfer
services. The Company also provides an express bill payment service through many
of its agent locations in the United States, and recently began to offer money
orders through a wholly owned subsidiary. See "New Products".

      The number of agent locations has grown from approximately 18,500 in 1996
to approximately 22,000 in March 1998. In each of 1996 and 1997, the Company
processed approximately 5.8 million transactions, and transferred $1.55 billion
and $1.57 billion principal amount of funds, respectively.

Customers and Markets

      Consumers sending expatriate remittance funds and individuals without bank
accounts are the two largest segments of repetitive money transfer customers.
The Federal Reserve Board of Governors estimates that there are approximately
15% of families in the United States that do not have checking accounts.
Additionally, industry analysts estimate that there are an increasing number of
people who remit funds to their respective countries of origin on a regular
basis.

      The Company believes international consumer money transfers will continue
to grow primarily due to the combination of increased migration and greater
consumer awareness. The Company believes that migration dynamics


                                        2
<PAGE>

throughout Latin America, the Caribbean, Europe, Africa and Asia provide
attractive growth potential for consumer money transfer services. The Company
intends to target advertising and promotional campaigns to raise awareness of
MoneyGram services to new groups of consumers.

The MoneyGram Agent Network

      The Company has an extensive global network of agents in the United
States, Mexico and in 103 other countries around the world. The Company's agent
network includes a variety of types of businesses, including supermarkets, check
cashers, convenience stores, travel agencies, bus stations and credit unions.

      A limited number of the Company's top agents generate a significant
percentage of the Company's transaction volume and revenues. In 1996 and 1997,
respectively, the Company's top 10 selling agents accounted for approximately
43% and 42% of the Company's transaction volume and 42% and 40% of the Company's
transaction fee revenues. Three of the top 10 MoneyGram agents in 1997, Banco
Nacional de Mexico S.N.C. ("Banamex"), America's Cash Express ("Ace") and the
Chicago Currency Exchange, were each involved in transactions representing more
than 10% of the Company's total revenues. The agreement with Banamex expires in
April 2002 and the agent contract with Ace currently expires in 2001. The
Chicago Currency Exchange consists of approximately 85 separate agent contracts
with owners of Chicago Currency Exchange locations that expire in 2000 or 2001.

The Money Transfer Process

      The actual collection and payout of funds in MoneyGram's money transfer
process is handled by the MoneyGram agents. Selling MoneyGram agents collect the
money to be transferred plus the transaction fee from the customer sending the
funds. The following morning the Company, through an automated clearing house
transfer, debits the selling agents' bank accounts for the dollar value of all
of the MoneyGram agents' transactions processed on the previous day and the
corresponding transaction fees.

      Receiving MoneyGram agents are authorized to pay out the transferred funds
to the recipient customer through confirmation of a reference number for the
transaction. The entire process generally is completed on a same day or next day
basis. The receipt of the transmitted funds is location independent; a recipient
customer can receive the funds from any MoneyGram agent within most of the
Company's agent network regardless of the sender's location. In most instances,
the receive agents are reimbursed for this payment by depositing a pre-signed
money transfer check into their bank account. The Company pays selling agents
and receiving agents their commissions at the end of each month. Commission
payments are based on a percentage of the consumer fee for a send transaction
and a flat fee for a receive transaction.

      Currently, the Company provides a free three-minute long distance
telephone call with each money transfer transaction within the United States or
between the United States and the Americas so that the sender may provide the
recipient with notice of the transaction.

MoneyGram Pricing and Fees

      The Company is compensated for its money transfer services through fees
paid by the sender and, in certain international transactions, revenues from
foreign exchange conversion. Transaction fees are charged to customers according
to a graduated schedule based upon the principal amount of the transaction.


                                        3
<PAGE>

ExpressPayment

      MoneyGram(R) ExpressPayment(sm) service, a service which provides
consumers with a way to quickly pay third party loans, bills or debt, is one of
the fastest growing segments of the money transfer industry. The Company
maintains contracts with entities such as credit card companies, lending
institutions and collection agencies ("Creditors") which provide customers with
credit and require a means by which customers can make overdue payments directly
to Creditors. To use ExpressPayment, the Creditor directs the consumer to visit
a MoneyGram location and transmit the amount due. The consumer pays the
principal amount owed and typically, a $10.50 flat fee to the MoneyGram agent. A
MoneyGram money transfer check automatically prints out at the Creditor's office
as immediately usable funds, or in some cases, an electronic file transmission
is issued to the Creditor.

Sales and Marketing

      The Company advertises its money transfer service primarily through
television ads, radio, print and other media including billboards and bus
benches. The Company has implemented advertising and promotion strategies,
including discounted price promotions, intended to increase its market share and
broaden the brand recognition of the MoneyGram service in its target markets.

      The MoneyGram agent network is supported by a nationwide sales and account
development team that recruits and trains the Company's agents. This team
provides a variety of services to MoneyGram agents including training,
automation, assistance with cooperative advertising and provision of signage.

Operations

      The Company's money transfer operations are located at its Lakewood,
Colorado facility. The Lakewood facility houses the Company's customer service
center which is staffed 24 hours a day, 365 days a year. The Company processes
an average of 24,000 voice calls per day and has operators fluent in 13
languages and at least 50% of the MoneyGram customer service representatives are
bilingual.

Phone Card

      The Company introduced a phone card product in the fourth quarter of 1996.
Customers can purchase a MoneyGram(R) Phone Card in denominations of $5, $10,
$20 or $50 and use the card to make calls from any telephone. International
calls typically also can be made with a phone card. The Company is well
positioned to service the phone card market and believes that the phone card is
a natural complement to its existing products.

New Products

      On January 8, 1998 the Company purchased Mid-America Money Order Company
("MAMO"), a nationwide issuer of money orders. The money order product is sold
through MAMO's agent locations.

      Consumers can purchase money orders in face amounts of up to $400 per
item. Upon payment of a fee, which is set by the agent, and the face amount of
the money order, the money order is electronically printed at the agent's
location and given to the consumer. MAMO charges the agent a per-item fee based
on volume and the agent's schedule for remitting the funds to MAMO.

      MAMO's agent network is supported by product specialists who recruit and
train money order agents. MoneyGram's sales and account development team has
begun to seek additional outlets for the sale of money orders in MoneyGram's
existing agent base and newly signed money transfer agents.


                                        4
<PAGE>

      MAMO's money order operations are located at its Louisville, Kentucky
facility. The Louisville facility handles all agent services and presented items
either through MAMO's own employees or pursuant to a processing arrangement with
Mid-America Data Processing, Inc.

International Transactions

   Mexico

      The Company's primary money transfer receive agent in Mexico is Banamex.
The agreement with Banamex allows the Company to process or pay United
States-to-Mexico MoneyGram money transfers only through Banamex as its receiving
agent, except for the limited circumstances in which the Company had a
relationship with a MoneyGram agent in Mexico prior to September 1, 1994 or in
specific regions of Mexico where Banamex does not have a branch location. The
agreement with Banamex is effective through April 17, 2002 and provides for an
automatic five year renewal unless either party notifies the other of its intent
to cancel 90 days prior to the end of the term. Currently, Banamex processes or
pays money transfers in Mexico only on behalf of the Business. Western Union has
agreed with the Company that prior to the earlier of the termination of the
Banamex Agreement or April 17, 2002, Western Union shall not use Banamex to
process, directly or indirectly, United States to Mexico consumer money transfer
service transactions on behalf of Western Union.

   The Americas

      Management views the international markets other than Mexico as its next
area of potential transaction growth. Focusing on particular corridors, the
Company is currently seeking to expand its global presence. Send transaction
volume to the Caribbean and Latin America has increased, and the advent of send
as well as receive capabilities by MoneyGram agents in the region is broadening
the Company's customer base and fostering growth in this market. The Company's
agent network in Latin America is increasing, with new MoneyGram agents in
Columbia, Ecuador, Guyana and Venezuela.

   Europe, Asia and Africa

      In February 1997, the Company and Thomas Cook Group Ltd. entered into a
joint venture to market and develop the MoneyGram money transfer service in
Europe, Asia, the Middle East and Africa. The Company and Thomas Cook control
51% and 49%, respectively, of the UK based joint venture company, MoneyGram
International Limited ("MIL"). In accordance with the joint venture agreement,
MIL is given responsibility in phases for specific countries covered by the
joint venture. As countries are put under MIL's control, certain revenue
generated in these countries is contributed to MIL. Effective March 1, 1998, the
Company and Thomas Cook agreed to amend the joint venture agreement to
accelerate the phase-in of specific countries.

   In Europe, the Company has recently added MoneyGram agents in Greece, the
United Kingdom, Ireland, Sweden, Italy, Denmark and Finland.

Competition

      The consumer money transfer and money order industries are highly
competitive. The principal methods of competition are advertising, price and
number and quality of agents and agent locations. The Company faces competition
from other consumer money transfer service providers as well as from other
payment products that offer consumers the ability to transfer funds to others.
Non-bank consumer money transfer services are provided primarily by two global
companies, MoneyGram and Western Union. MAMO's primary competitors are IPS,
Travelers Express and the United States Post Office.


                                        5
<PAGE>

      Recently, competition has increased in the money transfer industry through
the entry of new competitors or expanded services offered by existing
competitors, particularly in the U.S. to Mexico market. Orlandi Valuta,
previously a competitor primarily in the Los Angeles to Mexico corridor, has
expanded its U.S. presence to other locations and is now owned by Western Union.
The Company faces additional competition from the U.S. Postal Service which is
offering a money transfer product to Mexico from California, Texas and Chicago.
Niche competitors who serve specific migratory corridors also compete with the
Company, including several Mexican banks that have begun to offer consumer money
wire transfer services from the United States to Mexico. Niche competitors are
able to focus on particular geographic corridors and avoid the expenses
associated with maintaining nationwide and worldwide agent networks.

      The Company and MAMO also face competition from bank and non-bank
providers of other types of payment products and services, including money
orders, automated teller machines and similar retail electronic networks that
could allow consumers to transfer funds to others.

Proprietary Rights and Trademarks

      The Company uses certain service marks in the Business, including
"MoneyGram," "The Better Way to Wire Money," "Wire Money in Minutes", "Money in
Minutes Worldwide" and "Money Well Sent - Worldwide". Many of these marks have
been refused initial registration by the U.S. Patent and Trademark Office or are
concurrently being used by Western Union, the Company's principal competitor.

       "MoneyGram" is registered in certain countries, including the United
States, and applications are pending to register the mark in substantially all
other countries in which the Company is conducting, or intends imminently to
conduct, business. In certain other countries, the trademark examiners initially
have refused to register "MoneyGram" on the grounds that it is merely
descriptive of the service. The Company intends to defend vigorously the
registrability of "MoneyGram." However, no assurance can be given that
"MoneyGram" will be registered in any country where applications are pending.

      Western Union is using, among other marks, "The Best Way to Send Money"
and "The Fastest Way to Send Money" and has registered these marks in the United
States and in other countries. IPS, on behalf of MoneyGram, applied to register
"The Better Way to Wire Money" in the United States, and the U.S. trademark
examiner rejected the application due to Western Union's prior registrations for
said marks.

      Western Union uses "Money in Minutes" and has registered this mark in the
U.S. and has applied to register the mark in certain other countries. IPS, on
behalf of MoneyGram, applied to register "Wire Money in Minutes" in the United
States and expects that the U.S. trademark examiner will reject IPS's
application due to Western Union's prior United States registration.

      The Company and Western Union have no current dispute regarding the
Company's use of "The Better Way to Wire Money," "Wire Money in Minutes" or
"Money in Minutes Worldwide," and the two entities have concurrently used these
or similar marks for some time. However, the Company's and Western Union's
respective rights to these marks and to similar marks are unsettled. For
additional information, see "Background".

Regulation and Licensing

   State Regulation

      Forty-three states, the District of Columbia and Puerto Rico currently
have sale of checks or money transmission laws which require that firms which
engage in the business of transmitting funds by wire and/or issuing checks and
other payment instruments, including money orders, obtain a license prior to
engaging in such businesses. Most U.S. jurisdictions also require the posting of
a bond to protect the public from insolvency or default by the issuer. Some U.S.
jurisdictions also require licensees to maintain highly-rated, liquid
investments in an amount equal to the amount of their


                                        6
<PAGE>

outstanding payment obligations and many require the issuer to maintain a
minimum net worth and impose various reporting requirements.

      The Company is licensed in all states which require a license and in the
District of Columbia and Puerto Rico. MAMO is also licensed in all such states
and the District of Columbia.

   Federal Regulation

      The Company, MAMO and their agents are subject to the Bank Secrecy Act
("BSA") and the Money Laundering Control Act ("MLCA"), which were adopted to
combat "money laundering". The BSA requires money transmitters and issuers of
money orders to maintain certain records, and verify the identity of customers
and file reports at certain transaction amounts. The MLCA criminalizes certain
transactions, including the transfer of funds and the purchase of money orders
using funds that were derived from certain specified unlawful activities.

   Non-U.S. Regulation

      Some foreign countries have licensing requirements and other regulations
applicable to the Business. Such regulations may include both international
anti-money laundering initiatives and local regulation of money transmission.

      Although the business of consumer money transfer is not separately
licensed as in the U.S., in some jurisdictions the local agent or the
transmitter must hold a banking or foreign exchange license. In these instances,
the Company generally requires proof of the appropriate permit from the local
agent prior to its offering the MoneyGram service.

Employees

      The Company and its subsidiaries have approximately 720 employees,
including approximately 120 in sales and marketing, approximately 360 in
customer service center operations, and approximately 240 in operational,
general and administrative functions. None of the Company's or its subsidiaries'
employees are represented by a labor union, and the Company believes that its
employee relations are good.

ITEM 2. PROPERTIES.

      The Company leases executive office and customer service center space at
7401 West Mansfield Avenue in Lakewood, Colorado and executive office space at
Park 80 West in Saddle Brook, New Jersey. The former is pursuant to a lease that
expires in April 2002 and the latter is pursuant to a lease that expires in
April 2003. MAMO subleases office space in Louisville, Kentucky pursuant to a
sublease that expires in January 2002.

ITEM 3. LEGAL PROCEEDINGS.

      The Company is a defendant in a proposed class action commenced in the
United States District Court for the Central District of California on November
3, 1997 by Lidya Bueno and others. The action includes allegations that the
Company breached its contracts with the plaintiffs and has engaged in unfair and
fraudulent business practices, false advertising and discrimination, and seeks
money damages and injunctive relief. The Company believes that it has
meritorious defenses and intends to defend this action vigorously.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.

      No matters were submitted to a vote of the Company's securityholders
during the quarter ended December 31, 1997.


                                        7
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      The Common Shares are listed on the New York Stock Exchange, Inc.
("NYSE"). The following table sets forth, for the indicated calendar periods,
the reported high and low prices of the Common Shares on the NYSE Composite
Tape. The Common Shares have been listed on the NYSE since December 11, 1996.

1996                                                          High      Low

      Fourth Quarter (December 11 through December 31) ..  $  14.50   $  13.25

1997

      First Quarter .....................................  $  14.50   $   6.875
      Second Quarter.....................................  $  15.75   $   8.375
      Third Quarter......................................  $  18.625  $  14.50
      Fourth Quarter.....................................  $  17.875  $   8.50

1998

      First Quarter (through March 20, 1998).............  $  13.625  $  10.375

At March 20, 1998, there were 138 holders of record of the Common Shares.

No dividends were paid on the Common Shares in 1997 or 1998.


                                        8
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

                      SELECTED FINANCIAL AND OPERATING DATA
                                   (UNAUDITED)

      The following table sets forth selected financial data for the Company,
for years prior to 1997, presented on a carve-out basis for the Transition and
are derived from historical financial data of IPS. The financial data include
allocations of operating and general and administrative expenses to the Company
from IPS. Such allocations do not necessarily reflect the expenses that were or
will be incurred by the Company operating as a stand-alone entity. Management of
the Company believes that costs have been determined and allocated on a
reasonable basis and all costs attributable to conducting the Business have been
included in the Company's financial statements. In the opinion of management,
such expenses were not materially affected by the Company operating as a
stand-alone entity. See Note 1 of Notes to Financial Statements. The selected
financial data below should be read in conjunction with "Management's Discussion
and Analysis" and the financial statements appearing elsewhere in this document.
The financial and operating information for the years ended December 31, 1993
and 1994 are derived from unaudited financial statements not included in this
document.

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                ------------------------------------------------------
                                                1997       1996          1995          1994       1993
                                                ----       ----          ----          ----       ----
                                                         (in thousands, except per share data)
<S>                                           <C>        <C>           <C>           <C>        <C>
Statement of Operations Data:
   Revenues:
      Fee and other .......................   $113,637   $108,578      $ 94,242      $ 71,015   $ 48,815
      Foreign exchange ....................     27,274     29,141        42,826        20,373      3,070
                                              --------   --------      --------      --------   --------
        Total revenues ....................    140,911    137,719       137,068        91,388     51,885
   Expenses:
      Agent commissions and amortization
        of agent contract acquisition costs     52,851     44,255        34,801(1)     28,742     22,112
      Processing costs ....................     26,702     23,930        24,542        15,334     12,361

      Advertising and promotion ...........     28,091     29,113        33,822        19,523     13,708

      Selling, service and general and
        administrative ....................     25,457     16,745(2)     14,247(2)      8,378      6,900
                                              --------   --------      --------      --------   --------
        Total expenses ....................    133,101    114,043       107,412        71,977     55,081

   Income (loss) before income taxes ......      7,810     23,676        29,656        19,411     (3,196)

   Net income (loss) ......................   $ 11,680   $ 14,631      $ 18,294      $ 12,176   $ (2,077)

   Basic net income (loss) per
        common  share (3) .................   $    .70   $    .88      $   1.10      $    .73   $   (.12)

   Diluted net income (loss) per
        common  share .....................   $    .70   $    .88      $   1.10      $    .73   $   (.12)
</TABLE>

----------
(1)   Net of a $2.5 million commission rebate from Banamex received by the
      Company during the first quarter of 1995.
(2)   Includes costs and expenses related to obtaining consents from MoneyGram
      agents to permit the assignment of their agent contracts to the Company of
      $375,000 in the fourth quarter of 1995 and $500,000 in 1996.
(3)   Gives effect to the Company's issuance to IPS of 16,624,900 common shares
      prior to the IPO.


                                        9
<PAGE>

                      Selected Financial and Operating Data

                                   (unaudited)

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                      -------------------------------------------------
                                                      1997       1996       1995       1994        1993
                                                      ----       ----       ----       ----        ----
                                                                        (in thousands)
<S>                                                 <C>        <C>        <C>        <C>         <C>
Balance Sheet Data (at end of period):
   Assets restricted to settlement of
      MoneyGram transactions ....................   $ 14,040   $ 11,287   $ 26,010   $ 20,927    $ 12,827

      Fixed assets at cost, net of depreciation .     10,540      9,127      6,000      3,084       1,275

   Costs of acquiring agent contracts,
      net of amortization .......................     15,943     18,175      7,979      3,401       1,956

   Total assets .................................    136,718    113,729     41,618     28,583      16,502

   Total liabilities ............................     35,556     24,299     40,449     35,411      17,358

   Stockholders' equity (deficit) ...............    101,162     89,430      1,169     (6,828)       (856)

Operating Data:
   Number of MoneyGram agent
      locations (at end of period) ..............       22.0       18.5       17.2       16.0        14.1

   Number of transactions .......................      5,867      5,781      5,393      3,285       2,040
</TABLE>


                                       10
<PAGE>

                                QUARTERLY SUMMARY

      The following table presents unaudited interim operating results of the
Company. The Company believes that the following information includes all
adjustments (consisting only of normal, recurring adjustments) that the Company
considers necessary for a fair and consistent presentation, in accordance with
generally accepted accounting principles, of such information. The financial and
operating results for any interim period are not necessarily indicative of
results for any future interim period.

<TABLE>
<CAPTION>
                                                                             Quarter Ended
                                  -----------------------------------------------------------------------------------------------
                                                    1997                                               1996
                                  -----------------------------------------    --------------------------------------------------
                                  March 31   June 30    Sept. 30   Dec. 31     March 31      June 30       Sept. 30      Dec. 31
                                  --------   --------   --------   --------    --------      --------      --------      --------
                                                              (in thousands, except per share data)
<S>                               <C>        <C>        <C>        <C>         <C>           <C>           <C>           <C>
Revenues:
   Fee and other ..............   $ 26,325   $ 29,503   $ 29,775   $ 28,034    $ 27,567      $ 29,686      $ 26,901      $ 24,424
   Foreign exchange ...........      6.068      8,125      7,392      5,689       8,044         7,731         7,046         6,320
                                  --------   --------   --------   --------    --------      --------      --------      --------
       Total revenues .........     32,393     37,628     37,167     33,723      35,611        37,417        33,947        30,744

Expenses:
   Agent commissions and
      amortization of agent
      contract acquisition
      costs ...................     11,007     12,354     12,356     17,134      10,925        11,690        11,250        10,390
   Processing .................      6,025      6,440      6,289      7,948       6,411         5,873         5,576         6,070
   Advertising and
      promotion ...............      5,994      7,783      6,862      7,452       8,814         7,949         5,584         6,766
   Selling and service ........      3,059      2,723      2,792      2,439       2,221(1)      2,555(1)      2,869(1)      2,937
   General and
      administrative ..........      2,768      2,789      2,583      6,304       1,802         1,258         1,625         1,478
                                  --------   --------   --------   --------    --------      --------      --------      --------

       Total expenses .........     28,853     32,089     30,882     41,277      30,173        29,325        26,904        27,641
                                  --------   --------   --------   --------    --------      --------      --------      --------

   Income(loss) before income
      taxes ...................      3,540      5,539      6,285     (7,554)      5,438         8,092         7,043         3,103
   Income tax expense/(benefit)      1,380      2,209      2,483     (9,942)      2,083         3,099         2,676         1,187
                                  --------   --------   --------   --------    --------      --------      --------      --------

Net income ....................   $  2,160   $  3,330   $  3,802   $  2,388    $  3,355      $  4,993      $  4,367      $  1,916
                                  ========   ========   ========   ========    ========      ========      ========      ========

Basic net income per common
    share (2) .................   $    .13   $    .20   $    .23   $    .14    $    .20      $    .30      $    .26      $    .12

Number of transactions ........      1,282      1,572      1,550      1,463       1,505         1,481         1,400         1,395
</TABLE>

----------
(1)   Includes costs and expenses related to obtaining consents from MoneyGram
      agents to permit the assignment of their agent contracts to the Company of
      $300,000 in the first quarter of 1996, $150,000 in the second quarter of
      1996 and $50,000 in the third quarter of 1996.
(2)   Gives effect to the Company's issuance to IPS of 16,624,900 common shares
      prior to the IPO.


                                       11
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

Results of Operations

   Year Ended December 31, 1997 Compared with Year Ended December 31, 1996

      Revenues. The Company's revenues were $140.9 million in 1997 as compared
with $137.7 million in 1996. This was the net result of a 5% increase in fee
revenues, partially offset by a 6% decline in foreign exchange revenues.

      Fee revenues increased to $113.6 million from $108.6 million in 1996.
Transactions were 5.87 million in 1997, up 1% from the 1996 level of 5.78
million. The first quarter of 1997 reflected a 15% decline in transactions from
the 1996 level; excluding the first quarter, transactions were 7% higher than
1996. The average overall fee per transaction increased 2%. The fee per
transaction for money transfers going to Mexico declined 9% as a result of a
price promotion that extended over ten months of 1997, versus a six-month
promotion in 1996. The fee revenue includes interest income of $1.7 million in
1997 as compared with $.4 million in 1996.

      Foreign exchange revenues, most of which arise from U.S. to Mexico
transactions, declined to $27.3 million in 1997 from $29.1 million in 1996. This
was due mainly to a lower level of principal per transaction, a reduction in the
percent of spread and a decline in Mexican transactions.

      Expenses. Agent commissions were $52.9 million in 1997 versus $44.3
million in 1996. This increase was due to higher levels of fee revenues, the
full year amortization of certain signing bonuses which were entered into during
1996 and loss reserves established for specific contracts with guaranteed
minimum commission payments. The loss reserves were for contracts entered into
prior to 1996 and which extend through the year 2000.

      Processing expenses of $26.7 million in 1997 included $1.3 million of
reserves primarily for additional bad debts and the migration off the First Data
systems. Excluding the reserves, processing expenses were $25.4 in 1997, up 6%
from $23.9 million in 1996. This increase was mainly the result of a change in
the mix of transactions, with a trend towards a higher percentage of
international transactions, and higher operating costs associated with rent and
software licenses.

      Advertising and promotion expense declined 4% to $28.1 million in 1997
from $29.1 million in 1996 primarily due to reduced costs associated with the
free phone call which is offered to MoneyGram customers with each transaction.

      Selling and service expense increased 4% to $11.0 million from $10.6
million in 1996 as a result of the development of a separate stand-alone sales
and marketing force beginning in the second half of 1996.

      General and administrative expenses of $14.4 million included $3.4 million
of costs associated with modifications to the corporate structure, including
operating under MoneyGram's own licenses, a severance reserve and certain asset
write-offs. Excluding these costs, general and administrative expenses were
$11.0 million as compared with $6.2 million in 1996. The increase in this
expense category is due to expenses associated with the public company status
and higher depreciation expense.

      The Company recorded a benefit for income taxes of $3.9 million compared
with an income tax provision of $9.0 million in 1996. Included in the benefit is
a $6.9 million reversal of the valuation allowance associated with the Company's
deferred tax asset which was established at the time MoneyGram was divested by
First Data. Based on management's current judgement, it is more likely than not
that the Company will be able to fully utilize the entire value of the deferred
tax asset.


                                       12
<PAGE>

Year Ended December 31, 1996 Compared with Year Ended December 31, 1995

      Revenues. The Company's revenues were $137.7 million in 1996 as compared
with $137.1 million in 1995. This was the result of a 15% increase in fee
revenues, partially offset by a decline in foreign exchange revenues.

      Fee revenues increased to $108.6 million from $94.2 million in 1995. This
revenue growth was due to a 7% increase in transactions, to approximately 5.78
million transactions in 1996 from approximately 5.4 million transactions in 1995
and an 8% increase in the average fee per transaction that was attributable to a
lower level of price promotion during 1996. These growth factors were partially
offset by a lower average principal amount per transaction.

      Foreign exchange revenues decreased 32% to $29.1 million in 1996 compared
with $42.8 million for 1995. The foreign exchange revenue during 1995 was
unusually high primarily due to the volatility of the Mexican peso during this
period. The Mexican government has taken steps to stabilize the economy and
alleviate the political unrest and as a result, the peso was less volatile in
late 1995 and during 1996. In addition, the average principal per transaction
declined, resulting in less foreign exchange revenue.

      Expenses. Agent commissions increased 27% to $44.3 million in 1996 from
$34.8 million in 1995. This increase was mainly due to the higher level of fee
revenue (15%) and agent rebates associated with the 1995 price promotions.

      Although transaction volume increased, total processing expenses decreased
2% to $23.9 million in 1996 from $24.5 million in 1995, primarily due to
operational efficiencies and reduced telecommunications expense.

      Advertising and promotion expenses decreased 14% to $29.1 million in 1996
from $33.8 million in 1995. This was due to a decrease from the unusually high
advertising and discretional promotional expenses incurred in 1995.

      Selling and service expenses increased 41% to $10.6 million in 1996 from
$7.5 million in 1995. This was attributable to an increase in the number of
sales and service employees hired to expand and support the agent network as a
separate entity. During the first nine months of 1996, the Company incurred
approximately $500,000 in salaries, commissions and out-of-pocket expenses
related to obtaining consents from agents to permit the assignment of their
contracts to the Company upon its attaining licenses as a separate entity.

      General and administrative expenses decreased 8% to $6.2 million in 1996
from $6.7 million in 1995 as a result of certain costs being attributable
directly to the IPO.

Capital Resources and Liquidity

        Total assets increased $23 million, to $136.7 million in 1997 from
$113.7 million in 1996. This increase primarily consists of a $10.8 million
increase in cash and marketable securities, a $5.8 million increase in the
deferred tax asset and a $2.8 million increase in restricted assets.

      Total cash and cash equivalents was $20.5 million at December 1997 and
$18.0 million at December 1996. In prior years all available cash was
transferred to Integrated Payment Systems, Inc., as a return of capital. In 1997
the Company began investing in securities with maturities in excess of three
months to achieve a more favorable rate of return. At December 1997, $8.3
million was classified as Investments available for sale.

      Cash flow from operations was $19.5 million in 1997 as compared with $17.1
million in 1996 and $21.4 million in 1995. The improvement in 1997 was partially
due to the utilization of the deferred tax asset to reduce tax payments.

      Cash used for investing activities was $17.0 million in 1997 as compared
with $20.2 million in 1996 and $11.1 million in 1995. During 1996, $13.1 million
was paid to existing agents for extending the terms of their contracts by an
average of five years. In 1997, $8.2 million of Investments available for sale
were purchased and separately classified on the balance sheet.


                                       13
<PAGE>

      In 1996, IPS contributed $12 million as per the Contribution Agreement, as
defined in Note 1 to the financial statements, and assumed certain obligations
of the Company, both of which generated positive cash flows of $21.1 million.

      The Company has relied primarily on cash flows from operating activities
to support its capital investment program. Management expects that future
recurring capital needs will be largely met by funds generated from operating
activities. The Company signed a $20 million credit line in October 1997; to
date there have been no draw-downs on this credit line.

Impact of Year 2000

      The year 2000 issue is the result of computer programs being written using
two (2) digits rather than four (4) to define the applicable year. Any of the
Company's computer programs that have time-sensitive logic may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations including
among other things, a temporary inability to process transactions, which could
have a material impact on the operations of the Company.

      Based upon recent assessments, the Company has determined that it will be
required to modify or replace significant portions of its existing computer
systems not only to meet the year 2000 issue, but to insure that it has
technology to meet the changing needs of the market place. The Company will
utilize both internal and external resources to replace its existing systems
mainly through software packages currently available, including customized
modifications, in addition to some modifications to existing software. The new
packages will be year 2000 compatible; any modification to existing software
will require special programming to make them year 2000 compatible.

      The Company has initiated communications with all its significant
technology service providers and large agents to determine the extent to which
the Company's interface systems are vulnerable to those third parties failure to
address their own year 2000 issues. The Company's year 2000 project cost and
estimates to complete include the estimated costs and time associated with the
required implementations, based upon available information. However, there can
be no guarantee that the systems of other companies on which the Company's
systems rely will be converted and would not have an adverse effect on the
Company's systems.

      The Company anticipates completing the modernization of its systems within
eighteen (18) months, but not later than October 1999, which is prior to any
anticipated impact on its operating systems. The cost of the new systems,
including all reprogramming, is estimated at $5-8 million over the period.

      The cost of the project and the date on which the Company believes it will
complete the year 2000 implementation are based on management's best estimates
which were derived utilizing numerous assumptions of future events, including
the substantial reliance upon third parties. There can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences,
include but are not limited to, the availability of trained personnel, the
ability to locate and correct all relevant computer code, for those portions of
the system not being replaced, and similar uncertainties.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      Not applicable.


                                       14
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

      See the Financial Statements, together with the report thereon of Ernst &
Young LLP, dated March 12, 1998, on pages 18 through 30 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

      Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      See the Proxy Statement for the Company's 1998 Annual Meeting of
Stockholders, which information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

      See the Proxy Statement for the Company's 1998 Annual Meeting of
Stockholders, which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      See the Proxy Statement for the Company's 1998 Annual Meeting of
Stockholders, which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      See the Proxy Statement for the Company's 1998 Annual Meeting of
Stockholders, which information is incorporated herein by reference.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) (1)         Index to Financial Statements:

                The Financial Statements and the notes thereto, together with
                the report thereon of Ernst & Young LLP, dated March 12, 1998,
                appear on pages 18 through 30 of this Report. Financial
                statement schedules not included in this Report have been
                omitted because they are not applicable or the required
                information is shown on the Financial Statements or notes
                thereto.

(a) (2)         Financial Statement Schedules:

                None


                                       15
<PAGE>

(a) (3)         Exhibits:

                The following exhibits are filed as part of this Annual Report
                or, where indicated, were heretofore filed and are hereby
                incorporated by reference.

      2.1       Contribution Agreement, dated as of December 10, 1996, among the
                Company, IPS and First Data (incorporated herein by reference to
                Exhibit 2.1 of the Company's Annual Report on Form 10-K for the
                year ended December 31, 1997, the "1997 10-K").

      2.2       Stock Purchase Agreement dated August 4, 1997 between
                Mid-America Bancorp and the Company (incorporated by reference
                to Exhibit 2.1 of the Company's Current Report on Form 8-K dated
                January 8, 1998).

      3.1       Certificate of Incorporation of the Company, as amended to date
                (incorporated herein by reference to Exhibit 3.1 of the
                Company's Registration Statement No. 333-228).

      3.2       By-laws of the Company (incorporated by reference to Exhibit 3.2
                to the Company's Registration Statement No. 333-228).

      10.1      Operations Agreement, dated as of December 10, 1996, among the
                Company, IPS and First Data Technologies, Inc. (incorporated
                herein by reference to Exhibit 10.1 of the 1997 10-K).

      10.2      Software License Agreement, dated as of December 10, 1996,
                between the Company and IPS (incorporated herein by reference to
                Exhibit 10.2 of the 1997 10-K).

      10.3      Service Mark Letter Agreement, dated as of December 10, 1996,
                among Western Union, First Data and the Company which includes
                the Service Mark License Agreement among such parties as an
                exhibit thereto (incorporated herein by reference to Exhibit
                10.3 of the 1997 10-K).

      10.4      Human Resources Agreement, dated as of December 10, 1996, among
                the Company, IPS and First Data (incorporated herein by
                reference to Exhibit 10.4 of the 1997 10-K).

      10.5      Telecommunications Services Sharing Agreement, dated as of
                December 10, 1996, between the Company and First Data
                (incorporated herein by reference to Exhibit 10.5 of the 1997
                10-K).

      10.6      Agreement among American Express Travel Related Services
                Company, Inc., Banamex and California Commerce Bank, as amended
                (subject to a request for confidential treatment pursuant to
                Rule 406 of the Securities Act) (incorporated by reference to
                Exhibit 10.7 to the Company's Registration Statement No.
                333-228).

      10.7      1996 Stock Option Plan of the Company  (incorporated herein by
                reference to Exhibit 10.7 of the 1997 10- K).

      10.8      1996 Broad-Based Stock Option Plan  (incorporated herein by
                reference to Exhibit 10.8 of the 1997 10-K).

      10.9      Lease Agreement between the Company and the Mutual Life
                Insurance Company of New York in respect of certain facilities
                located in Lakewood, Colorado (incorporated by reference to
                Exhibit 10.10 the Company's Registration Statement No. 333-228).

      10.10     Letter Agreement between the Company and Western Union regarding
                Banamex (incorporated by reference to Exhibit 10.12 to the
                Company's Registration Statement No. 333-228).


                                       16
<PAGE>

      10.11     Executive Retention Plan, dated May 15, 1997, as amended to date
                (incorporated by reference to Exhibit 10 of the Company's
                Quarterly Report on Form 10Q for the quarter ended June 30,
                1997).

      10.12     Service Agreement, dated November 25, 1997, as amended, between
                the Company and Advantis Corporation (portions of which are
                subject to a request for confidential treatment pursuant to
                Rule 24b-2 of the Exchange Act).

      23.1      Consent of Independent Auditors.

(b)(1)          Reports on Form 8-K:

                The Company filed the following reports on Form 8-K for the
                quarter ended December 31, 1997:

                Date                                Item
                ----                                ----
                October 22, 1997                      5
                December 3, 1997                      5
                December 24, 1997                     5

      27.       Financial Data Schedule.


                                       17
<PAGE>

                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To The Board of Directors and Stockholders of
MoneyGram Payment Systems, Inc.

      We have audited the accompanying balance sheets of MoneyGram Payment
Systems, Inc. (the "Company") as of December 31, 1997 and 1996, and the related
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MoneyGram Payment Systems,
Inc. at December 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.



                                                 ERNST & YOUNG LLP

New York, New York
March 12, 1998


                                       18
<PAGE>

                         MONEYGRAM PAYMENT SYSTEMS, INC.

                                  BALANCE SHEET
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                       ---------------
                                      ASSETS                                           1997       1996
                        ------------------------------------                           ----       ----
<S>                                                                                  <C>        <C>
Current Assets:
           Cash and cash equivalents .............................................   $ 20,540   $ 17,996
           Investments available for sale ........................................      8,300         --
           Assets restricted to settlement of MoneyGram transactions .............     14,040     11,287
           Fee revenue receivable ................................................      2,567        587
           Receivable from IPS ...................................................      3,105      3,659
           Prepaid and other current assets ......................................        638        648
                                                                                     --------   --------
           Total current assets ..................................................     49,190     34,177

Fixed assets at cost, net of depreciation: 1997 - $8,472;  1996 - $7,911 .........     10,540      9,127
Deferred tax asset (Note 3) ......................................................     58,090     52,250
Other assets .....................................................................      2,955         --

Costs of acquiring agent contracts, net of amortization:
           1997 - $9,704; 1996 - $4,903 ..........................................     15,943     18,175
                                                                                     --------   --------
Total assets .....................................................................   $136,718   $113,729
                                                                                     ========   ========

                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     ------------------------------------
Current Liabilities:
           Liabilities relating to unsettled MoneyGram transactions ..............   $ 14,040   $ 11,287
           Accounts payable and accrued liabilities ..............................     12,324      5,726
           Commissions payable ...................................................      6,523      7,286
                                                                                     --------   --------
           Total current liabilities .............................................     32,887     24,299

Other obligations ................................................................      2,669         --

Stockholders' Equity:
           Common stock, $.01 par value, authorized 100,000,000 shares; issued and
             outstanding 16,625,000 shares .......................................        166        166
           Capital surplus .......................................................     85,089     85,089
           Valuation allowance ...................................................         52         --
           Retained earnings .....................................................     15,855      4,175
                                                                                     --------   --------

           Total stockholders' equity ............................................    101,162     89,430
                                                                                     --------   --------
Total liabilities and stockholders' equity .......................................   $136,718   $113,729
                                                                                     ========   ========
</TABLE>

                             See accompanying notes


                                       19
<PAGE>

                         MONEYGRAM PAYMENT SYSTEMS, INC.

                             STATEMENT OF OPERATIONS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                        -----------------------------
                                                        1997         1996        1995
                                                        ----         ----        ----
<S>                                                   <C>          <C>         <C>
Revenues:
      Fee revenue, net of refunds .................   $ 113,637    $ 108,578   $  94,242
      Foreign exchange ............................      27,274       29,141      42,826
                                                      ---------    ---------   ---------
            Total revenues ........................     140,911      137,719     137,068
                                                      ---------    ---------   ---------

Expenses:
      Agent commissions and amortization of
      agent contract acquisition costs ............      52,851       44,255      34,801
      Processing ..................................      26,702       23,930      24,542
      Advertising and promotion ...................      28,091       29,113      33,822
      Selling and service .........................      11,013       10,582       7,525
      General and administrative ..................      14,444        6,163       6,722
                                                      ---------    ---------   ---------
            Total expenses ........................     133,101      114,043     107,412
                                                      ---------    ---------   ---------

Income before income taxes ........................       7,810       23,676      29,656

Income tax  expense/(benefit) (Note 3) ............      (3,870)       9,045      11,362
                                                      ---------    ---------   ---------

Net income ........................................   $  11,680    $  14,631   $  18,294
                                                      =========    =========   =========

Basic net income per common share .................   $     .70    $     .88   $    1.10
Diluted net income per common share ...............   $     .70    $     .88   $    1.10

Weighted average shares and equivalents outstanding      16,701       16,630      16,625
</TABLE>

                             See accompanying notes


                                       20
<PAGE>

                         MONEYGRAM PAYMENT SYSTEMS, INC.

                             STATEMENT OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                                ----------------------------
                                                                1997        1996        1995
                                                                ----        ----        ----
<S>                                                           <C>         <C>         <C>
Cash flows from operating activities:
Net income ................................................   $ 11,680    $ 14,631    $ 18,294
Adjustments to reconcile net income to net cash provided by
      operating activities:
Depreciation and amortization expense .....................      8,323       6,910       3,762
Deferred tax asset ........................................     (5,840)         --          --
Other noncash charges .....................................        330         192         (22)
Changes in operating assets and liabilities:
      Assets restricted  to settlement of
               MoneyGram transactions .....................     (2,753)     14,723      (5,083)
      Accounts receivable .................................     (1,980)        578        (255)
      Receivable from IPS .................................        554      (3,659)         --
      Prepaid and other assets ............................     (2,028)       (377)       (181)
      Liabilities relating to unsettled MoneyGram
      transactions ........................................      2,753     (14,723)      5,083
      Accounts payable and other liabilities ..............      8,470      (1,177)       (189)
                                                              --------    --------    --------
Net cash provided by operating activities .................     19,509      17,098      21,409
                                                              --------    --------    --------

Cash flows from investing activities:
Purchase of investments available for sale ................     (8,214)         --          --
Purchase of equipment and signage .........................     (6,205)     (7,095)     (4,638)
Costs of acquiring agent contracts ........................     (2,546)    (13,137)     (6,474)
                                                              --------    --------    --------
Net cash used for investing activities ....................    (16,965)    (20,232)    (11,112)
                                                              --------    --------    --------

Cash flows from financing activities:
Net transfer from (to) IPS ................................         --      21,130     (10,297)
                                                              --------    --------    --------
Net cash provided(used) by financing activities ...........         --      21,130     (10,297)
                                                              --------    --------    --------

Net increase in cash and cash equivalents .................      2,544      17,996          --

Cash and cash equivalents at beginning of year ............     17,996          --          --
                                                              --------    --------    --------

Cash and cash equivalents at end of year ..................   $ 20,540    $ 17,996    $     --
                                                              ========    ========    ========
</TABLE>

No cash was paid for taxes, except for payments to IPS, in 1996 and 1995. In
1997 taxes of $3.6 million were paid in cash.
There was no interest paid in 1995, 1996 or 1997.

                             See accompanying notes


                                       21
<PAGE>

                         MONEYGRAM PAYMENT SYSTEMS, INC.

                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>
                                                               Retained
                                                               Earnings/                Stockholders'
                                      Common     Capital     (Accumulated   Valuation      Equity/
                                       Stock     Surplus       Deficit)     Allowance     (Deficit)
                                       -----     -------       --------     ---------     ---------
<S>                                     <C>       <C>          <C>            <C>          <C>
Balance December 31, 1994               $166      $21,756      $(28,750)      $ --         $(6,828)

      Net income                          --           --        18,294         --          18,294
      Return of capital to IPS            --      (10,297)           --         --         (10,297)
                                        ----      -------       -------       ----        --------

Balance December 31, 1995                166       11,459       (10,456)        --           1,169

      Net income                          --           --        14,631         --          14,631
      Capital contribution from IPS       --       21,130            --         --          21,130
      Deferred tax asset                  --       52,500            --         --          52,500
                                        ----      -------       -------       ----        --------

Balance December 31, 1996                166       85,089         4,175         --          89,430

      Net income                          --           --        11,680         --          11,680
      Adjustment                          --           --            --         52              52
                                        ----      -------       -------       ----        --------

Balance December 31, 1997               $166      $85,089       $15,855       $ 52        $101,162
                                        ====      =======       =======       ====        ========
</TABLE>

                             See accompanying notes


                                       22
<PAGE>

                         MONEYGRAM PAYMENT SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

1. Background and Basis of Presentation

   Background

      MoneyGram Payment Systems, Inc. (the "Company" or "MoneyGram") is a
non-bank provider of consumer money wire transfer service. MoneyGram targets its
services to individuals without traditional banking relationships.

      The Company was until December 11, 1996 (the date of the MoneyGram IPO,
"the IPO Date"), a wholly owned subsidiary of Integrated Payment Systems Inc.
("IPS"), which is a wholly owned subsidiary of First Data Corporation ("First
Data"). IPS managed the payment instruments business, which included the
MoneyGram business ("the Business"). MoneyGram's financial statements have been
prepared as if it were the issuer of the payment instruments.

      In October 1995, First Data consummated a merger transaction with First
Financial Management Corporation whose subsidiary Western Union Financial
Services, Inc. ("Western Union"), provides money transfer services similar to
MoneyGram. In January 1996, First Data entered into a consent decree with the
Federal Trade Commission ("FTC") regarding MoneyGram and Western Union. Under
the terms of the consent decree, First Data was allowed to perform processing
services for both MoneyGram and Western Union, but it was permitted to retain
the sales and marketing functions of only one of the two businesses. In
addition, First Data and the FTC entered into a "hold separate" agreement
whereby the Business was to be managed and maintained as a separate, ongoing
business, independent of all other First Data businesses and independent of the
Western Union business. Among its provisions the hold separate agreement
required that, prior to consummation of the divestiture, IPS expend not less
than $24 million annually on MoneyGram advertising and promotion with no less
than $10 million to be expended for any two consecutive quarterly periods. This
agreement further required that, during the hold separate period, IPS pay the
MoneyGram sales force 120% of the standard 1995 sales commission rates. The hold
separate arrangement continued until the IPO Date.

      First Data decided to comply with the divestiture requirements of the
consent decree through a public stock offering of the Company's common stock by
IPS (the "Offering"). In conjunction with the Offering, the Company was formed
as a wholly owned subsidiary of IPS in January 1996. In accordance with the
Contribution Agreement among the Company, First Data and IPS, certain assets
necessary to operate the Business (the "MoneyGram Assets") were transferred,
subject to certain liabilities, to the Company just prior to the completion of
the IPO in exchange for 16,624,900 shares of the Company's common stock. The
accompanying financial statements have been prepared as if this exchange had
been consummated prior to January 1, 1995 and the assets and liabilities are
reflected therein at their historical cost basis. The MoneyGram Assets included
certain proprietary rights and trademarks material to the conduct of the
Business; the net economic benefits under certain MoneyGram agent contracts;
certain applications software; the leases, leasehold improvements, personal
property and third party contracts associated with MoneyGram's Lakewood,
Colorado customer service center; and certain personal property and leases
related to property, such as computers and signage, provided to MoneyGram agents
for their use in providing MoneyGram services. In addition, pursuant to the
Contribution Agreement, IPS contributed $12 million in cash to the Company and
paid certain liabilities prior to the IPO Date. Such capital contributions are
reflected in the Company's 1996 financial statements.

      In conjunction with the Offering, the Company, IPS and affiliates of IPS
also entered into an operations agreement (the "Operations Agreement"), a
software license agreement (the "Software License Agreement"), a short-term
working capital facility (the "Facility"), a service mark letter agreement (the
"Service Mark Letter Agreement"), a Service Mark License Agreement, a human
resources agreement (the "Human Resources Agreement") and a telecommunications
services sharing agreement (the "Telecom Agreement"). The Operations Agreement
requires IPS to provide the Company with certain data processing services,
including the processing of MoneyGram transactions for a period of two years,
certain management services necessary for the Company to comply with state
licensing requirements until such time as the Company is fully licensed in all
states to offer consumer money transfer services in its own name and certain


                                       23
<PAGE>

additional support services. These services are provided to the Company at First
Data's good faith estimate of its actual cost of providing such services
(including reasonable allocations of overhead expenses). The Software License
Agreement provides the Company with a perpetual, assignable, nonexclusive,
royalty free, worldwide, irrevocable license to use certain software used in
operating the Business. Under the Facility, the Company could borrow from
time-to-time, on a revolving, unsecured basis. The Facility was terminated in
1997 without being drawn down. Pursuant to the Service Mark Letter Agreement,
the Company and First Data have agreed not to sue one another in respect of
certain disputed marks for a period of two years commencing at the IPO Date and,
at the option of the Company, it may cause Western Union and IPS to enter into
an agreement pursuant to which Western Union would grant the Company a license
to use certain of these disputed service marks in certain languages. The Human
Resource Agreement provided for the transfer of employees from First Data to the
Company and the Telecom Agreement provides the Company access to
telecommunications services provided to First Data at First Data's tariff rates.

   Financial Statement Presentation

      The accompanying financial statements have been prepared as if the
transaction and agreements described immediately above were consummated and/or
entered into prior to January 1, 1995. These financial statements present the
financial position, results of operations and cash flows attributable to
MoneyGram, which was operated as a product line of IPS, through the IPO Date.
The following paragraphs set forth the methodologies and assumptions utilized in
preparing the accompanying financial statements for periods prior to the IPO
date.

   Balance Sheets

      The balance sheet caption "Liabilities relating to unsettled MoneyGram
transactions" represents the principal value of all unsettled MoneyGram
transactions where the recipients have not yet picked up their funds. Specific
fiduciary assets maintained by IPS for MoneyGram and the consequent amounts due
from IPS relative to the unsettled MoneyGram transactions liability are included
in the accompanying balance sheet under the caption "Assets restricted to
settlement of MoneyGram transactions".

   Statement of Operations

      The statement of operations reflects revenues and related commission
expenses that were distinct and separately identifiable to MoneyGram as well as
an estimate of allocable investment earnings based upon IPS investment returns
applied to an estimated average cash position.

      Until the IPO Date, MoneyGram was a part of IPS' retail services product
group; accordingly, with the exception of agent commission and advertising
expenses, a substantial portion of the expenses in the accompanying statements
of operations represents allocations of IPS costs. IPS' accounting systems
provided for the capturing of costs on a functional cost center basis. Certain
cost centers relate exclusively and others relate substantially to the MoneyGram
service, and have been allocated accordingly, to the Company. The expenses,
included in the accompanying statements of operations, attributable to these
cost centers amounted to $25.4 million, and $26.0 million for the years ended
December 31, 1996, and 1995 respectively. These expenses relate principally to
IPS' two customer service centers and other processing costs. The remaining
$15.7 million, and $12.8 million of expenses, excluding agent commissions and
advertising, represent allocations that are based upon various factors which, in
the opinion of management, approximate actual usage. These allocated expenses
related to legal, finance, accounting, treasury, human resources, sales and
other support functions. Included in these allocated expenses are allocations of
IPS general and administrative expenses, based upon the Company's proportion of
IPS' gross revenues. The allocated expenses in the accompanying statement of
operations include allocations from First Data and affiliates of $2.3 million
and $3.9 million for the years ended December 31, 1996 and 1995, respectively.
The First Data allocations relate principally to the Company's estimated
participation in certain First Data insurance, benefit and incentive plans, as
well as certain other services provided during those periods, including the
Company's estimated portion of charges to the Company for data processing
services provided by First Data Technologies, Inc., a wholly owned subsidiary of
First Data, of $2.1 million and $2.2 million for the years ended December 31,
1996 and 1995, respectively. The statements of operations do not include any
allocations of First Data general and administrative expenses as such costs were
not considered to be variable as a result of the Company's


                                       24
<PAGE>

operations. Management of the Company believes that costs have been determined
and allocated on a reasonable basis. The Company's expenses, as reflected in the
accompanying statements of operations, were not materially affected as a result
of its becoming a stand-alone entity and its execution of the Contribution
Agreement, the Operations Agreement and the Facility, but do reflect additional
costs incurred as a result of becoming a separate public company.

2. Summary of Significant Accounting Policies

   Revenue Recognition

      Fee revenue, net of refunds, represents the transaction fee charged by the
selling agent to the consumer and is recognized at the date of sale. Foreign
exchange revenue represents the Company's share of amounts attributable to
favorable spreads between wholesale foreign currency purchase rates and the
retail exchange rate charged to consumers, principally with respect to Mexican
pesos. Commissions to agents are either a percentage of the transaction fee
charged to the consumer or a fixed dollar amount per transaction and also
include amounts attributable to minimum commission guarantees with respect to
certain agents. Commissions to agents are expensed as incurred; the agent
guaranteed commissions are included when the agent does not achieve the
guaranteed amount.

   Diluted Net Income Per Share

      Diluted net income per common share is computed using the weighted-average
number of common shares and common share equivalents outstanding during each
period. Common share equivalents represent the effect of outstanding stock
options. Prior years have been restated to conform with SFAS 128, "Earnings per
Share."

   Cash and Cash Equivalents

      The Company has classified as cash equivalents its investments in the
highest grade federal government discount notes, and commercial paper with an
original maturity of three months or less.

   Investments Available for Sale.

      The securities are stated at fair value with the unrealized gains or
losses (net of taxes) being reported in a separate component of stockholder's
equity.

   Fixed Assets

      Fixed assets are stated at cost less accumulated depreciation and
amortization. Fixed assets are comprised of personal computers, equipment,
furniture and fixtures, leasehold improvements and agent signage. These assets
are depreciated over their estimated useful lives ranging from 3 to 8 years.
Depreciation is computed using the straight-line method.

   Advertising and Promotional Expense

      The Company records advertising and promotional expense based on actual
expenses incurred.

   Costs of Acquiring Agent Contracts

      Amounts paid to acquire multi-year exclusive contracts with agents are
capitalized and amortized on a straight-line basis over the life of the related
contract (3 to 5 years).


                                       25
<PAGE>

   Other Obligations

      Included are the impairment reserves for underperforming agent contracts
with guaranteed minimum future commission payments. These reserves will be
partially used to offset the payments to agents for a two year period.

   Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.

3. Income Taxes

      The Company has accounted for income taxes under the liability method. The
taxable income of the Company for the periods up to the IPO Date is included in
the taxable income of IPS, which is included in the consolidated U.S. federal
income tax return of First Data. Except as described below, the Company's
provision for income taxes, through the IPO date, has been computed as if it
were a separate tax-paying entity. The Company is a separate tax-paying entity
for periods subsequent to the IPO Date.

      For periods prior to 1997 there was no formal tax-sharing agreement
between the Company, IPS and First Data, however, First Data subsidiaries
remitted current taxes payable to First Data and they were entitled to
reimbursement from First Data for current tax benefits. The provision for income
taxes, for periods prior to the IPO Date, was computed as if the Company were a
subsidiary of First Data and, therefore, the tax benefits resulting from taxable
losses incurred by the Company during and prior to 1995 have been recorded in
those years. As a result, the accompanying financial statements do not reflect
any benefit for utilization of tax loss carry forwards.

      As a result of the IPO, the tax basis (for federal income tax purposes) of
the MoneyGram assets has increased from their tax basis in the hands of IPS to
their fair market value at the IPO Date (determined by reference to the initial
public offering price). Such tax treatment will produce a tax benefit to the
Company in future years through depreciation or amortization deductions or
through decreased gain or (subject to certain limitations) increased loss on a
disposition of any MoneyGram asset. Pursuant to the requirements of SFAS No. 109
the Company recorded a deferred tax asset (with a corresponding credit to
capital surplus) for the tax effect of the excess of the MoneyGram assets
following the Contribution over their net book value. The amount of the deferred
tax asset that was recorded at the IPO Date was reduced by a valuation
allowance. Based on management's current judgement, it is now more likely than
not that the Company will be able to fully utilize the full value of this asset
and thus the valuation allowance was reversed in the fourth quarter of 1997.


                                       26
<PAGE>

      The income tax expense (benefit) consists of the following (in thousands):

                                                    Year ended December 31,
                                              ----------------------------------
                                               1997          1996         1995
                                              -------       -------      -------

Current federal ........................      $ 1,640       $ 7,667      $ 9,850
Current state and local ................          330         1,128        1,512
Deferred taxes - federal ...............       (4,867)          250           --
Deferred taxes - state and local .......         (973)           --           --
                                              -------       -------      -------
Total ..................................      $(3,870)      $ 9,045      $11,362
                                              =======       =======      =======

      Deferred income taxes result from the recognition of temporary differences
between the tax basis of assets and liabilities and their reported amounts in
the financial statements. This will result in differences between income for tax
purposes and income for financial statement purposes in future years. The
deferred tax provision was immaterial for 1995. As a result of the IPO in
December 1996, MoneyGram was no longer included in the consolidated U.S. federal
income tax return of First Data. The primary component of the Company's deferred
tax assets as of December 31, 1997 and 1996, on a stand alone basis, results
from the differences in book and tax depreciation and amortization ($55.2
million and $52.3 million, respectively) and reserves not yet deducted for tax
purposes ($2.9 million in 1997).

      The reconciliation of income tax computed at the U.S. federal statutory
tax rate to income tax (benefit) expense is (in thousands):

                                                       Year ended December 31,
                                                    ----------------------------
                                                     1997       1996      1995
                                                    -------    -------   -------
Tax at U.S. statutory rate ......................   $ 2,733    $ 8,287   $10,379
Increases in taxes resulting from State and local
    taxes, net of federal income tax benefit ....       335        758       983
Decrease in valuation allowance .................    (6,938)        --        --
                                                    -------    -------   -------
       Income tax expense (benefit) .............   $(3,870)   $ 9,045   $11,362
                                                    =======    =======   =======

4. Investments Available for Sale

      The following is a summary of the available-for-sale securities as of
December 31, 1997:

                                                        (in thousands)
                                                   Gross       Gross   Estimated
                                                 Unrealized Unrealized    Fair
                                           Cost    Gains      Losses     Value
                                          ------   ------     ------     ------
Bankers acceptance notes ..............   $4,867       81         --     $4,948
Other obligations of U.S. government
     agencies .........................    2,788       10         --      2,798
U.S. corporate debt instruments .......      559       --         (5)       554
                                          ------   ------     ------     ------

Total .................................   $8,214       91         (5)    $8,300
                                          ======   ======     ======      ======

      All investments available for sale have current maturity dates of three to
twenty-three months.


                                       27
<PAGE>

5. Retirement Plans and Retiree Medical Benefits

      MoneyGram maintains a defined contribution savings plan which covers all
of the Company's full-time employees. The plan provides for tax deferred amounts
for each participant, consisting of employee elective contributions and
additional matching and discretionary Company contributions. The aggregate
amounts charged to expense in connection with this plan was $.4 million in 1997.
Prior to December 1996, MoneyGram employees were covered under First Data's
defined contribution plan. Pursuant to the terms of the Human Resources
Agreement among First Data, IPS and the Company, employees transitioning from
First Data to the Company have been fully vested in their First Data retirement
benefits.

      The Company does not provide to its retirees any form of health care or
life insurance benefits, other than those benefits required by law. Any benefits
provided will be fully paid for by the retirees without any corporate subsidy.

6. Operating Lease Commitments

      Certain facilities and operating equipment utilized in the operations of
the Business are leased under cancelable and noncancelable agreements. Rental
expense amounted to $1.0 million in 1997, and $0.8 million for both 1996 and
1995, respectively. Future minimum lease payments at December 31, 1997 are $1.0
million for 1998, $1.1 million for 1999 and 2000, $1.2 million for 2001 and $.6
million for 2002. Certain leases on office space contain renewal options and
escalation clauses providing for additional rentals based upon maintenance,
utility and tax increases.

7. Commitments and Contingencies

      In certain instances, MoneyGram agents have been guaranteed minimum
commissions. As of December 31, 1997, the remaining maximum commitment amounts
to approximately $55.4 million as follows on a calendar year basis: 1998--$15.4
million; 1999--$16.8 million; 2000--$17.3 million; 2001--$3.9 million and
2002--$2.0 million. Historically, MoneyGram's volume growth has been sufficient
to mitigate required performance under these guarantees, and net payments under
these guarantees amounted to $5.1 million, $3.2 million and $1.3 million during
the years ended December 31, 1997, 1996 and 1995, respectively.

      MoneyGram is involved in litigation primarily arising in the normal course
of its business. In the opinion of management, MoneyGram's liability, if any,
under any pending litigation would not materially affect the Company's financial
condition or operations.

      The Company currently offers its customers a free three minute phone call
with most transactions. In addition, the Company sells phone cards through its
agents. During 1996, the Company entered into a three year agreement with a
telecommunications provider for voice telephone services, guaranteeing $14
million in usage by July 2000. An amendment to this agreement has been signed
which will terminate the original agreement, including the guarantee portion,
effective March 1998, without any penalty to the Company. A contract has been
signed with a new telecommunications provider. This agreement will not require
any guaranteed usage levels or minimum payments.


                                       28
<PAGE>

8. Fixed Assets

      The details of fixed assets are as follows:

                                                           (in thousands)
                                                       1997              1996
                                                    ----------        ----------
Gross assets:
    Leasehold improvements .................        $    1,288        $    1,132
    Agent signs ............................             3,034             5,610
    Computer related equipment .............            13,301             9,480
    All other ..............................             1,389               816
                                                    ----------        ----------
    Total gross assets .....................            19,012            17,038

Less accumulated depreciation ..............             8,472             7,911
                                                    ----------        ----------
Net fixed assets ...........................        $   10,540        $    9,127
                                                    ==========        ==========

9. Stock Options

      In connection with the IPO, the Board of Directors of the Company adopted,
and IPS as the Company's sole stockholder approved, the Company's 1996 Stock
Option Plan (the "1996 Stock Option Plan") and the Company's 1996 Broad-Based
Stock Option Plan. The Company has reserved for issuance under the 1996 Stock
Option Plan and the 1996 Broad-Based Stock Option Plan 1,175,000 and 25,000
shares of common stock, respectively. The exercise price of the options granted
is equal to the common stock's fair market value at the date of grant. The
exercise price for all options outstanding is $9.50-$12.50, with 1.1 million of
options exercisable at $12. Options are vested at a rate of 25 percent per year
over a four year period from the date of grant. Options for 271,000 shares are
exercisable, at $12, as of December 31, 1997. A summary of the changes in the
plans is as follows:

                                                        1997            1996
                                                     ----------      ----------
Options Outstanding at beginning of year              1,162,325              --
Granted                                                  98,750       1,162,575
Cancelled                                               (79,463)           (250)
                                                     ----------      ----------
Outstanding at end of year                            1,181,612       1,162,325
                                                     ==========      ==========

      The Company has elected to follow APB No. 25 and its related
interpretations in accounting for its stock-based compensation plans. No
compensation cost has been recognized in the Statements of Operations for the
stock options granted. The disclosure requirements of SFAS No. 123 require
companies which do not record the fair value in the statements of operations to
provide pro forma disclosures of net income and earnings per share in the notes
to the financial statements as if the fair value of the stock-based compensation
had been recorded.

      The Company utilized a Black-Scholes option pricing model to quantify the
pro forma effect on net income and earnings per share of the fair value of the
options granted. Based on the results of the model, the value of the options
granted is $153,000 in 1997 and $308,000 in 1996. The following weighted
assumptions were used in 1997: no annual dividends, an expected life of 5 years,
expected volatility of 58% and a risk-free interest rate of 5.6%. The Company's
pro forma net income would have been $11.6 million and $14.4 million in 1997 and
1996 respectively, compared to actual net income of $11.7 million and $14.6
million respectively; pro forma earnings per common share would have been $.70
compared to $.70 and $.87 compared to $.88.

      On December 24, 1997, the Board of Directors of the Company approved the
repurchase of up to 800,000 shares of its common stock. As of December 31, 1997
there were no repurchases. In the first quarter of 1998, the Company repurchased
111,200 shares.


                                       29
<PAGE>

10. Credit Risk and Certain Relationships

      Credit risk results from the possibility that a loss may occur from the
failure of another party to perform according to the terms of a contract. In the
case of MoneyGram, the principal risk is that a selling agent fails to remit the
proceeds of a transaction to the Company. The Company mitigates this risk
through extensive credit evaluations prior to entering into a contractual
relationship and thereafter monitors performance to ensure compliance. The
agents are required to deposit daily the principal and fees received the prior
day into a trust account, and these funds are drawn down daily by MoneyGram.
MoneyGram agents conduct business in thousands of locations. Further, the nature
of the agents' principal businesses is diverse and the agent base includes
supermarkets, department and convenience stores, travel agents and check cashing
establishments.

      Approximately 48%, 55% and 64% of MoneyGram's total revenues (including
foreign exchange revenues and allocated investment income) were derived from
money transfer transactions from the United States to Mexico during the years
ended 1997, 1996 and 1995, respectively. The Mexican receive agent for
substantially all of these transactions is a major Mexican financial institution
operating under the terms of a contract expiring in April 2002.

11. Subsequent Events (unaudited)

      On January 8, 1998, the Company purchased, for cash, the stock of
Mid-America Money Order Company ("MAMO") from Mid-America Bancorp for $15.6
million. MAMO is engaged in the sale of retail money orders through a nationwide
agent network.

      A summary of MAMO's unaudited financial data for the year ended December
31, 1997, is as follows:

                                 $ Millions
                                 ----------

Revenue                             $ 5.6
Operating expense                     3.7
                                    -----
Income before income taxes            1.9
                                    =====

Net income                          $ 1.1
                                    =====

Cash and cash equivalents           $38.1
Other assets                          4.9
                                    -----

Total assets                        $43.0
                                    =====

Money orders outstanding            $32.5
Other liabilities                      .5
Stockholder's equity                 10.0
                                    -----

Total liabilities and
stockholder's equity                $43.0
                                    =====

      During the first quarter of 1998, the Company has successfully transferred
its data processing from First Data to a computer facility provided by IBM
Global Network Services. Additionally, the Company now operates under licenses
issued in its own name, completing the separation from First Data.


                                       30
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

                                               MoneyGram Payment Systems, Inc.
                                               (Registrant)


                                               By: /s/ James F. Calvano
                                                   -----------------------------
                                                   James F. Calvano
                                                   Chairman of the Board and
                                                   Chief Executive Officer
                                                   March 30, 1998

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
            Name                               Title                                   Date
            ----                               -----                                   ----


<S>                              <C>                                              <C>
/s/   James F. Calvano           Chairman of the Board and                        March 30, 1998
------------------------------   Chief Executive Officer
      James F. Calvano           (Principal Executive Officer)


/s/   Robbin L. Ayers            Director and Executive Vice President            March 30, 1998
------------------------------
      Robbin L. Ayers


/s/   John M. Fowler             Director, Executive Vice President,              March 30, 1998
------------------------------   Chief Financial Officer and Treasurer
      John M. Fowler             (Principal Financial and Accounting Officer)


/s/   Brian J. Fitzpatrick       Director                                         March 30, 1998
------------------------------
      Brian J. Fitzpatrick


/s/   William D. Guth            Director                                         March 30, 1998
------------------------------
      William D. Guth


/s/   Sanford Miller             Director                                         March 30, 1998
------------------------------
      Sanford Miller
</TABLE>


                                       31