<PAGE>
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
 
                      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 JUNE 30, 1998
 
                                      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 1-14224
 
                               PAYMENTECH, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                                                       
              DELAWARE                               75-2634185
   (STATE OR OTHER JURISDICTION OF                (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                IDENTIFICATION NO.)
 
     1601 ELM STREET, 9TH FLOOR                           
            DALLAS, TEXAS                               75201
   (ADDRESS OF PRINCIPAL EXECUTIVE                   (ZIP CODE)
              OFFICES)
            
   
              
 
      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 849-2149
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
<TABLE>
<CAPTION>
                                                        NAME OF EACH EXCHANGE
          TITLE OF EACH CLASS                            ON WHICH REGISTERED
          -------------------                          -----------------------
      <S>                                              <C>
      Common Stock, $.01 par value                     New York Stock Exchange
</TABLE>
 
       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. Yes [X]  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 the definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_].
 
  As of September 14, 1998, the aggregate market value of the voting stock
held by non-affiliates of the Registrant (computed by reference to the closing
price of Paymentech, Inc. Common Stock as reported on the New York Stock
Exchange on such date) was approximately $183,877,571. For purposes of such
calculation, shares owned by directors and executive officers of the
Registrant have been treated as owned by affiliates of the Company, although
such treatment is not an admission of the affiliate status of any of such
parties. As of September 14, 1998, there were outstanding 36,121,989 shares of
Paymentech, Inc. Common Stock, $.01 par value.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
  Portions of the 1998 Annual Report to Stockholders for the year ended June
30, 1998 are incorporated by reference into Parts II and IV. Portions of the
definitive Proxy Statement for the Paymentech, Inc. 1998 Annual Meeting of
Stockholders are incorporated by reference into Part III.
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
 
                                PAYMENTECH, INC.
 
                          1998 FORM 10-K ANNUAL REPORT
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
 
                                     PART I
 
<S>                                                                       <C>
Item 1.Business..........................................................   3
Item 2.Properties........................................................  15
Item 3.Legal Proceedings.................................................  16
Item 4.Submission of Matters to a Vote of Security Holders...............  16
 
                                    PART II
 
Item 5.Market for Registrant's Common Equity and Related Stockholder
 Matters.................................................................  16
Item 6.Selected Financial Data...........................................  16
Item 7.Management's Discussion and Analysis of Financial Condition and
 Results of Operations...................................................  16
Item 7A.Quantitative and Qualitative Disclosures About Market Risk.......  16
Item 8.Financial Statements and Supplementary Data.......................  17
Item 9.Changes in and Disagreements with Accountants on Accounting and
 Financial Disclosure....................................................  17
 
                                    PART III
 
Item 10.Directors and Executive Officers of the Registrant...............  17
Item 11.Executive Compensation...........................................  18
Item 12.Security Ownership of Certain Beneficial Owners and Management...  18
Item 13.Certain Relationships and Related Transactions...................  18
 
                                    PART IV
 
Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K.  18
 
                                   SIGNATURES
 
Signatures...............................................................  21
</TABLE>
 
                                       2
<PAGE>
 
                                    PART I
 
ITEM 1. BUSINESS
 
  Paymentech, Inc. (the "Company" or "Paymentech"), incorporated in 1995, is a
Delaware corporation, which engages in the credit card industry primarily as a
payment processor of credit and debit card transactions on behalf of
merchants, financial institutions and sales agents. The Company also provides
third-party credit and debit authorization services to financial institutions,
sales agents and Paymentech's direct merchants. During fiscal 1998, the
Company processed sales volume of approximately $49.3 billion and
approximately 1.9 billion total transactions, making it the third largest
payment processor of bankcard transactions in the United States according to
published industry sources. In addition, Paymentech markets and issues
commercial cards to businesses and other entities. Commercial cards facilitate
business-to-business payment procedures and reporting, replacing traditional
direct payment methods.
 
  First USA Financial, Inc. ("First USA") is the beneficial owner of
approximately 55% of the outstanding common stock of the Company. First USA's
former indirect parent, First USA, Inc., merged with BANC ONE CORPORATION
("Banc One") in June 1997, and accordingly, First USA is a wholly owned
subsidiary of Banc One. Banc One has agreed to combine with First Chicago NBD
Corporation (the "Banc One Merger") into a new Delaware corporation to be
named "BANK ONE CORPORATION". Upon completion, First USA will be a wholly
owned subsidiary of BANK ONE CORPORATION ("Bank One").
 
  In April 1997, Banc One and Paymentech announced that Banc One expected to
reduce its ownership in Paymentech provided that such ownership reduction
could be accomplished in such a way as to preserve the pooling of interest
accounting treatment of the Banc One/First USA, Inc. merger transaction. Banc
One has informed Paymentech that it has recently completed an assessment of
the strategic value of its ownership interest in Paymentech and a review of
the business prospects of Paymentech and has concluded that its present
intention is not to reduce this ownership interest.
 
  The address of the principal executive office of the Company is 1601 Elm
Street, Dallas, Texas 75201, and its telephone number is (214) 849-2149.
 
PAYMENT PROCESSING
 
 General
 
  During fiscal 1998, the Company processed approximately $49.3 billion in
sales volume and approximately 1.9 billion total transactions, making it the
third largest payment processor of bankcard transactions for merchants in the
United States, according to published industry sources. The Company markets
its services directly to merchants, financial institutions and sales agents,
and indirectly through financial institutions and sales agents, which in turn
market processing services to merchants.
 
  The principal operations of the Company are located in Dallas, Texas, with a
number of additional sales and support offices throughout the United States.
Payment processing operations are performed through the Company's wholly owned
subsidiaries, Paymentech Merchant Services, Inc. ("Merchant Services") and
Paymentech New Hampshire, Inc. ("PNH"). The principal corporate operations of
the Company outside of Dallas, Texas are located in Salem, New Hampshire;
Tampa, Florida; Silver Spring, Maryland and Salt Lake City, Utah.
 
 Payment Cycle
 
  The payment cycle includes authorizing bankcard transactions at the point of
sale, capturing data related to transactions, settling transactions with the
card associations on behalf of the merchant and providing transaction
 
                                       3
<PAGE>
 
reporting to the merchant. In the course of processing an electronic
transaction, various parties operate together and the authorization and
capture process is usually completed within 8 to 15 seconds. The authorization
process includes obtaining approval from the card issuing bank for the
cardholder's purchase at the merchant location. Authorization procedures
confirm that the cardholder has the available credit to cover the purchase and
verify that the card has not been reported lost or stolen. In the event that
the merchant is not able to connect with the electronic data capture ("EDC")
network, the Company provides access to a voice authorization and automated
voice response unit that is available 24 hours a day, seven days a week.
 
  While each transaction is being authorized, the transaction data, including
dollar amount and card number, is captured in the EDC network and used in
settling the transaction and preparing reports for the merchant. Depending
upon the merchant's EDC network, the merchant can capture transactions at the
terminal level or the network computer level. The Company's internal
proprietary data capture system is capable of managing multiple batches of
transactions and data per day from each merchant, which is an important
feature during peak sales periods. In addition, the Company's high-speed batch
deposit system allows direct response merchants to deliver transactions to the
Company and receive immediate authorization responses.
 
  Settlement involves managing a record of each merchant's transactions and
transferring funds from the issuer of the card to the merchant for payment.
The Company transmits transaction information to the card issuing bank through
Visa and MasterCard and arranges for funds to be transferred to the merchant's
bank account via Automated Clearing House or Fedwire transfer, which is
ultimately credited to the merchant's account. The cardholder is then billed
by the card issuing bank. Settlement payments made to merchant accounts may
reflect a discount from the full transaction price, which generally includes
the Company's processing fee and Visa and MasterCard interchange and
assessments. Each step in the settlement process involves a number of
procedures that must be completed in accordance with Visa and MasterCard
requirements. The merchant's account will generally be credited within 24 to
72 hours from the time of closing a batch of transactions.
 
  The Company uses its internal proprietary network and settlement system and
a number of third-party national networks for its authorization, capture and
merchant accounting services. The Company has entered into agreements with
several third-party vendors who provide processing services to the Company.
However, the Company continues to emphasize converting existing merchants to,
and installing new merchants on, the Company's internal data processing
systems, which have operating costs that are lower than the costs of obtaining
data processing services from third-party vendors.
 
 Products
 
  The Company offers a wide range of quality products and services related to
payment processing. The Company's proprietary third-party licensed software
applications, authorization and EDC processing solutions enable authorization
and capture of Visa, MasterCard, Diners Club, JCB, American Express, Discover,
on-line debit, and private label transactions. Additionally, the Company
provides settlement services for Visa, MasterCard, Diners Club, and JCB.
Paymentech reports activity to the merchant through various customized
reporting products. The Company manages two payment processing systems: one is
dedicated to the direct response, or non-face-to-face, markets where the
cardholder is not present and the other is focused on retail, or face-to-face
markets where the cardholder is present.
 
  Direct Response Products. The Company provides a comprehensive batch
authorization and accounting system developed exclusively for non-face-to-face
transactions. Several batch authorization methods are available which provide
options to the merchant that enable efficient transaction processing of
authorization and capture services. The Company provides all settlement
services internally. Direct response products have traditionally supported the
mail order houses and cataloguers but have expanded to include recurring
billing and installment markets such as Internet providers, cable companies,
and utilities. The processing for all major card types, a unique electronic
check processing service, and international capabilities for Canada, the
United Kingdom, Germany and France continue to make the Company's direct
response products dominant.
 
                                       4
<PAGE>
 
  The Company has established a leadership position in electronic commerce
processing through its relationship with a large number of electronic commerce
partners. These partners provide web site creation, maintenance and payment
processing services that interface with the Company's direct response
authorization systems. Additionally, the Company has in progress an initiative
to support a Secure Electronic Transaction (SET) Protocol through a
proprietary secure gateway and merchant web site application. Paymentech also
offers to its direct response clients "SecureTran," a product which provides a
secure path from the merchant to the Company providing encryption and de-
encryption of transaction data on each end of the connection.
 
  Direct Response Reporting and Support Products. The Company provides one of
the most advanced fraud prevention and chargeback resolution capabilities in
the industry. Fraud and chargeback tools have been tailored to the direct
response industry enabling the early detection of fraudulent activity and the
automatic response to a significant percentage of chargebacks. The Company
provides a broad array of merchant statementing and reporting, but is
recognized for its e-mail reporting services.
 
  Retail POS Products. The Company provides its point of sale ("POS") clients
with internally developed POS solutions, third-party support of integrated POS
solutions, authorization and EDC services, and comprehensive customer
information and reporting products.
 
  POS solutions are developed internally for both dedicated POS terminals and
personal computers ("PC") hardware. These solutions support five primary
industries with industry customized features. These industries include
specialty retail, restaurants, lodging, direct response and petroleum. POS
terminal solutions are developed to fit the small, one register location or
the large multi-lane/register locations.
 
  The Company's premier terminal product includes a unique peer-to-peer local
area network ("LAN") that allows more efficient management of the customers'
check-out process. For example within the restaurant industry, waiters check
out a consumer on one terminal and then can return to adjust for the tip at
any of the terminals on the LAN. Therefore, using Paymentech's restaurant
product eliminates the typical wait station congestion.
 
  The Company's PC solution streamlines check out and back office procedures
by consolidating into one PC all of the functions associated with closing out
the day. For example in the hotel industry, transactions in the gift shop,
restaurant and front desk can be consolidated into a single PC for night
auditor or management review. Consolidation can occur by closing out the day
at the terminal and forwarding the transactions to the PC or the PC can
automatically poll the terminal and retrieve the data ensuring that all
terminals are closed and data available for the night auditor.
 
  Customized solutions are available for the specialty retail, direct response
and petroleum industries as well. Integrated solutions provided by value added
resellers ("VARs"), to the merchant are increasing as technology costs
decrease and merchant integration needs increase. The integrated solution
combines store or location functions such as inventory control, pricing, and
menu orders with the Company certified payment solution. The Company has
certified over 100 VAR solutions and provides specialized support services to
the VAR ensuring the merchant's level of service is maintained.
 
  Retail Authorization Services. Through its subsidiary Paymentech Network
Services, Inc. the Company provides authorization services not only to the
Company but to financial institutions, independent sales organizations
("ISO's") and some direct merchants. Paymentech is unique in offering both
host-based capture and terminal-based capture allowing maximum flexibility for
the merchant in selecting their processing methodology. A full range of
communication methods for conveying transactions are supported including dial,
lease line, frame relay, wireless, and satellite.
 
  Retail Reporting Services. The Company provides a comprehensive package of
merchant information and reporting solutions. Solutions contain a variety of
content including transaction detail, financial summary information and
retrieval requests. Information is delivered via mail, fax, bulletin board
services, CD-ROM, file
 
                                       5
<PAGE>
 
transmission, and remote dial-up PC products. A range of delivery schedules is
available--daily, weekly, monthly, fiscal period or on request.
 
  New Product Initiatives. The Company implemented split-site, load-balanced
processing for the authorization and capture systems. Direct response and
retail products will be supported on systems located in Salem, New Hampshire
and in Tampa, Florida. This split-site, load balanced strategy ensures not
only that on a daily basis the authorization traffic is efficiently routed
through both processing locations but that in the event of a prolonged outage
in one location, transaction activity can be rerouted to the unaffected
location.
 
  The Company is rolling out an extensive Internet reporting solution
initially in support of the direct response merchants. Information available
to the merchants will include authorization, transaction and financial data.
Another new product will be the second phase of SE Workstation, the
cooperatively released PC product with American Express Co. that Paymentech
offers to retail clients. The current SE Workstation product integrates
summary financial data and retrieval requests for transactions on Visa,
MasterCard, Diners and JCB with American Express equivalent information. The
second phase adds notification and acceptance of responses for chargebacks.
 
  Another initiative of Paymentech's is to build a file processor switch that
can accept settlement files directly from retail merchants. By controlling the
acceptance of the settlement files, the Company is able to customize and match
formats which the merchant or their vendor are using. Accompanying this
initiative is the development of an electronic merchant set-up tool, Take An
Application ("TAPP") which allows remote or direct entry of merchant
information, supports modeling for quoting pricing, and facilitates the flow
of the application for services through the Company's process. TAPP
automatically sends merchant information to Paymentech's authorization and
accounting systems which is needed for establishing the account and enabling
services. TAPP will also populate a complete merchant database used for
customer service, the Customer Profile Database ("CPDB") currently in
development.
 
 Revenue
 
  The Company's revenue is generated primarily from fees from merchants
related to the processing of transactions (including merchant discount fees)
partially offset by interchange fees payable to credit card issuing
institutions and fees payable to credit card associations. Commercial card
revenue is derived primarily from interchange, fee and interest income.
Revenue is recorded as services are performed. Revenue also includes fees
earned from software maintenance and customer service and fees for the
deployment and repair of credit card terminals. In addition, operating
revenues earned on settlement assets are included in revenue.
 
  The processing fees charged to a particular customer vary with the total
dollar amount processed, average purchase amount and number of transactions
processed for the customer. There are two primary billing methods, each using
a per-transaction basis for calculating fees. The first billing method, the
discount rate method, is the traditional billing method and is most common for
smaller merchants. Under this billing method, a discount rate is charged for
each transaction. The other billing method is the per item or transaction fee
pricing method. Under this billing method, the merchant is billed a flat fee
per transaction, plus Visa and MasterCard interchange and assessments and
certain per item fees. Larger merchants often prefer this pass-through billing
method to the discount rate method. Financial institutions and sales agents
are also generally charged using the per item or transaction fee billing
method.
 
  The Company incurs Visa and MasterCard interchange and assessments charges.
Interchange fees are stated fees charged by Visa and MasterCard to reimburse
card issuing banks for the risk of transaction fraud, processing expenses and
funding during the period from purchase to payment. The fee schedules are set
by Visa and MasterCard, and are based upon the type of merchant, transaction
type (electronic or paper-based) and settlement time. Interchange fees on
consumer cards generally range from 1.31% to 2.10% of the transaction amount.
Although interchange rates vary by merchant industry, they are uniform among
payment processors. Assessments
 
                                       6
<PAGE>
 
are stated fees charged by Visa and MasterCard to fund their internal
operations. Assessments are also uniform among payment processors.
 
  The following table provides an example of a transaction in the amount of
$100 in the Visa network in which the discount rate charged to the merchant is
2.0%, the interchange fee is 1.31% and the Visa assessment fee is 0.084%.
These fees can vary substantially among different merchant types.
 
<TABLE>
<CAPTION>
                                                             CARD ISSUING
   PAYMENTS AND FEES                   MERCHANT  THE COMPANY     BANK     VISA
   -----------------                   --------  ----------- ------------ -----
<S>                                    <C>       <C>         <C>          <C>
Transaction Amount.................... $100.00    $(100.00)         --      --
Discount..............................   (2.00)       2.00          --      --
Interchange Fee.......................     --        (1.31)    $   1.31     --
Assessment Fee........................     --        (0.08)         --    $0.08
Payment by Card Issuing Bank..........     --       100.00      (100.00)    --
Payment by Cardholder.................     --          --        100.00     --
                                       -------    --------     --------   -----
  Revenue............................. $ 98.00    $   0.61     $   1.31   $0.08
                                       =======    ========     ========   =====
</TABLE>
 
 Operating Strategy
 
  In order to remain competitive in the payment processing industry, the
Company continues to dedicate significant resources to acquiring and
developing unique products and services that will lower costs, generate new
sales and reduce customer attrition. The resulting proprietary products, along
with continuing systems enhancements and operating efficiencies, provide
improved services for its customers, and the Company believes its dedication
to developing these products will allow it to remain highly competitive in the
industry.
 
  The Company is committed to providing superior service and retaining its
current customer base. The Company provides an extensive package of high
quality service features to its customers, including toll-free customer
service and terminal support 24 hours a day, seven days a week, 48-hour
terminal replacement, terminal set-up assistance and training for new
merchants and flexible reporting capabilities, both in frequency and format.
Long-term relationships are established through the continued support and
interaction of professional account managers.
 
  The Company believes that its investment in open systems versus mainframe
technology has allowed it to efficiently implement competitive business
solutions for its customers. Open systems technology results in lower
equipment costs and allows the Company to respond more quickly to market
opportunities, resulting in competitive and innovative products and systems.
 
 Growth Strategy
 
  The Company benefits from several sources of growth. The electronic payment
industry has historically grown at a double-digit rate and Paymentech expects
to continue to benefit from this secular growth. The Company expects internal
growth from all of its lines of business: direct response and retail merchant
processing, third-party processing and commercial card issuance. There are
also opportunities for growth of the business by expanding merchant processing
into businesses that have not traditionally accepted electronic forms of
payment.
 
  The Company's internal sales and marketing efforts include both direct and
indirect sales efforts. One aspect of the Company's growth strategy relies on
sales volume growth from merchants that are solicited directly through the
Company's internal sales force. Direct merchants are the most profitable
segment of the Company's merchant portfolio. The Company continues to
aggressively seek new direct merchant customers of all sizes, especially
within the Company's core merchant industries, which include the direct
response, retail, travel and entertainment and petroleum industries.
 
                                       7
<PAGE>
 
  The Company also markets its authorization services indirectly to merchants
through sales agents and financial institutions. Sales agents provide varying
degrees of customer service to the merchants which the Company approves for
processing. The fees charged to sales agents by the Company vary based upon
level of service provided, allocation of risk of loss and transaction volume.
As part of the process of approving a new sales agent, an analysis of the
credit of the sales agent as well as its principals is performed. This
analysis encompasses a business and personal credit review and contacting Visa
and MasterCard regarding the sales agent's relationship with prior processors.
The Company is required to register its sales agents with Visa and MasterCard
and file quarterly sales and activity reports.
 
  The Company also directly markets to merchants through referral arrangements
with local, regional and national financial institutions. The Company
generally assumes the marketing and support functions with respect to these
relationships.
 
  The Company is dedicated to increasing the effectiveness and efficiency of
its sales team. The Company has a sales force automation system which provides
sales tools, instant data access and remote on-line communication to the sales
team. The sales group includes field representatives and proactive sales
representatives. Proactive sales is the telemarketing arm of the Company and
provides the Company with the ability to reach unmanned markets in a cost
effective manner. This group also supports the field representatives in a
broad range of programs that increase the productivity of the entire team as
well as increase penetration in any given vertical or geographic market.
 
  Another source of growth Paymentech expects to pursue is the acquisition of
businesses and merchant portfolios. Acquisitions have been an important
component of the Company's growth and Paymentech believes it is well
positioned for future acquisition opportunities.
 
 Customer Base
 
  The Company's customer base consists of a diverse group of merchants, sales
agents and financial institutions. The Company's customer base is national in
scope, and includes customers of various sizes and in a number of industries.
The Company also offers international processing services. During fiscal 1998,
no one customer represented in excess of 5% of the Company's annual sales
volume processed.
 
  The Company's merchant portfolio includes national accounts, as well as many
smaller, regional merchants. The merchant portfolio contains concentrations of
merchants in several industries. The largest industry categories as of June
30, 1998 were direct response (41%), retail (22%), travel and entertainment
(18%) and petroleum (10%).
 
  Customer attrition is a normal part of the payment processing business. The
Company believes that providing cost-effective, reliable and responsive
service is the most effective long-term strategy to attracting and retaining
customers in a competitive industry. In addition to loss of customers
experienced by the Company due to attrition, in certain cases the Company has
elected not to continue processing for customers that were experiencing
financial difficulties. The Company has also lost customer accounts to
competitors in situations in which the Company was unwilling to match a
competitor's rates in light of the credit risks associated with the particular
merchant or its industry.
 
 Credit
 
  Visa and MasterCard require that an in-depth examination of a merchant be
performed prior to processing for the merchant. The Company has established a
credit review policy that exceeds the minimum Visa and MasterCard standards
and examines other significant areas identified through its experience in the
payment processing business. For each merchant, the Company verifies the
existence of the merchant location, the type of merchandise sold, the
estimated sales volume and insures that the average ticket appears reasonable
for the type of business. A review of the relationship with the previous
processor is conducted to determine the reason the
 
                                       8
<PAGE>
 
merchant is changing processors. An acceptable MATCH report, which is a report
derived from a Visa and MasterCard database of merchants who have violated
Visa and MasterCard rules in the past, an acceptable credit bureau report on
principals of the business and acceptable financial statements for the
business may also be required.
 
  After merchants begin processing, the Company reviews unusual activity on a
daily basis. Visa and MasterCard have established minimum standards for weekly
review. The Company believes that its daily procedures generally exceed these
standards. Volume and average ticket variations are analyzed along with
excessive even dollar transactions, duplicate amounts, duplicate cardholder
transactions, keyed transactions and level of chargebacks and retrievals. The
Company has the ability to hold a merchant's daily settlement if fraudulent or
unauthorized activity is suspected. Security analysts talk to cardholder
banks, cardholders, Visa and MasterCard, as well as the merchants to determine
if the unusual activity is legitimate or fraudulent. If fraudulent activity is
discovered, the merchant is terminated and placed in the MATCH file so that
future processors will be aware of previous problems.
 
  The Company also reviews potential merchants based upon the merchant's
industry. According to Visa and MasterCard rules, the Company has contingent
liability for chargeback transactions. For most industry types, a chargeback
and potential Company liability is unlikely and limited because the product or
service charged by the cardholder is delivered upon payment. However, for
industries where the card is not present at the time of the transaction, such
as in the direct response industry, which includes the mail order and
telephone order businesses, the Company's potential liability is greater. The
Company takes these and other risks into account in making its credit
determinations with respect to potential new merchants. At June 30, 1998, the
Company had cash deposits from certain customers aggregating approximately
$22.8 million as an offset to potential contingent liabilities that are the
responsibility of such customers. These cash reserves are primarily related to
merchants in the direct response industry.
 
  Credit losses incurred by the Company with respect to its payment processing
business were approximately $1.0 million, $1.6 million and $640,000 in fiscal
1998, 1997 and 1996, respectively, compared with total sales volume processed
in such periods of $49.3 billion, $41.3 billion and $30.9 billion,
respectively. Beginning in fiscal 1997, credit losses include losses incurred
as a result of third-party authorization transactions. Paymentech's payment
processing operations are not exposed to cardholder credit losses. However,
the Company's commercial card operations incurred $1.1 million and $364,000 in
credit losses during fiscal 1998 and 1997, respectively.
 
  The Company also in most cases performs a credit analysis of sales agents
prior to processing for such sales agents. Such review includes a business and
personal credit review of the sales agent and its principals, as well as
contacting Visa and MasterCard regarding the sales agent's relationship with
prior processors.
 
 Competition
 
  The payment processing market is highly competitive. Uniform interchange
requirements and Visa and MasterCard compliance rules limit significant
pricing variances among processors. Therefore, the Company competes on the
basis of customer service, product features and customized solutions,
processing speed and systems reliability. The Company believes that these are
the critical factors analyzed by merchants when choosing a payment processor.
 
  As a result of its single purpose focus and many years of experience in
payment processing, the Company has been able to develop operating
efficiencies which the Company believes allow it to competitively bid for new
business. In addition, the Company has continually made technological
improvements, and is thus able to respond to the unique needs of customers in
various industries. Furthermore, such single purpose focus allows the
Company's workforce to provide more responsive customer service to customers.
 
                                       9
<PAGE>
 
  Investment in open systems technology versus mainframe technology has
allowed the Company to efficiently implement competitive business solutions
for its customers. Open systems technology results in lower equipment costs
and allows the Company to respond more quickly to market opportunities,
resulting in competitive and innovative products and systems. Through a
combination of strategic acquisitions and construction of custom solutions,
the Company believes that it continues to deliver more innovative choices to
its customers. Responding to the changing point of sale environment and
rapidly evolving payment systems is an ongoing requirement for payment
processors.
 
  The Company views the 10 largest payment processors in the United States as
its primary competitors. According to published industry sources, the 10
largest payment processors processed approximately 80% of the total sales
volume processed for the calendar year 1997. The Company is the third largest
payment processor of bankcard transactions in the United States, according to
published industry sources, and estimates that it currently processes
approximately 8% of total bankcard sales volume. The Company also competes
with other providers of credit and debit authorization services.
 
  The payment processing industry has consolidated significantly in the past
few years, due to the large investments required for the development of
technologically advanced systems and expanded business services. The Company
believes this trend will continue as the technological demand on processors
continues to increase.
 
STRATEGIC INVESTMENTS
 
  The Company has an investment and processing relationship with First Virtual
Holdings, Inc. ("First Virtual"), a public company formed to facilitate
Internet commerce. First Virtual offers an off-line Internet payment system
which became operational in October 1994. The Company's President and Chief
Executive Officer serves on the Board of Directors for First Virtual. First
USA also owns a minority interest in First Virtual, which the Company sold to
First USA during fiscal 1996.
 
  The Company has an investment and processing relationship with NXT
Corporation ("NXT"). NXT is a network services company that provides advanced
intelligent routing for transaction based services. The Company's Chief
Operating Officer serves on the Board of Directors for NXT.
 
COMMERCIAL CARDS
 
  The Company conducts its commercial card operations in Salt Lake City, Utah,
through its wholly owned subsidiary, First USA Financial Services, Inc.
("Financial Services"). The Company markets and issues commercial cards to
businesses and other entities. Commercial cards facilitate centralized
business-to-business payment procedures and reporting, replacing traditional
direct payment methods. The Company began to issue its commercial cards in
September 1995 following receipt of an initial capital contribution of $16.1
million from First USA. Commercial card revenue is derived primarily from
interchange, fee and interest income.
 
  The Company's current operating and growth strategies are to aggressively
market its commercial card products and develop customer relationships that
will provide strategic business opportunities for growth. In addition to
developing its own partnerships with financial institutions, corporations and
other entities, the Company expects to realize synergies from existing
customer relationships established by its payment processing business, and can
rely upon its existing telemarketing and other sales and marketing structures.
The Company believes it is uniquely positioned in its ability to offer one-
stop payment processing solutions to customers that include integrated payment
processing and commercial card services.
 
  The Company offers various types of Visa and MasterCard cards to its
customers. The origination and servicing of Visa and MasterCard accounts is
subject to the terms and conditions of membership in Visa and MasterCard, and
the Company has agreed to comply with the By-laws and Operating Regulations of
Visa and MasterCard, which are subject to change.
 
                                      10
<PAGE>
 
  The Company offers its products for use by officers, directors, employees
and other individuals designated by a customer in connection with business
expenditures by such individuals. Each account is subject to an agreement with
the customer governing the terms and conditions of the related Visa or
MasterCard account, and in most cases, agreements with each individual
cardmember.
 
  The Company's product offerings include corporate cards, which are
nonrevolving charge cards designed for use by medium to large companies for
travel and entertainment expenditures. Annual fees are negotiable based upon
certain pricing assumptions made by the Company, including the number of cards
that will be issued for the account of the customer, the expected aggregate
charge volume for the cards issued, the length of the billing cycle, the
anticipated credit losses associated with the cards, the liability structure
of the card account agreements and other considerations. The Company also
charges other fees associated with corporate cards, including late, cash
advance and returned check fees. Customers generally pay daily, weekly or
pursuant to other billing options of 30 days or less from the billing date.
The Company offers various information reporting solutions to its customers,
including PaymentNet, a proprietary Internet-based reporting system. As an
incentive to the customer to encourage use of its corporate cards, the Company
may in some instances pay rebates to the customer if certain charge volume or
other requirements are met.
 
  In addition to corporate cards, the Company offers purchasing cards, which
are nonrevolving charge cards designed for use by medium to large companies,
and are used by employees who are responsible for making regular purchases of
equipment, supplies and services on behalf of the customer. The purchasing
card permits the cardmember to charge such items in a streamlined fashion
without the need for cumbersome and paper-intensive purchase orders and
invoices. The reporting package provided by the Company in connection with the
purchasing card provides detailed information regarding the products purchased
and other relevant information required for the customer's records, thereby
helping to eliminate the need for purchase orders and invoices. As with
corporate cards, annual fees charged for purchasing cards are negotiable based
upon certain pricing assumptions made by the Company, and in certain instances
the Company may grant rebates if a customer meets certain charge volume or
other requirements. The Company may also charge other fees associated with the
purchasing cards, including late, cash advance and returned check fees. The
Company also offers access to a cardless account through which purchases can
be made by authorized users for specific types of charges or charges made with
specific vendors. The fees and charges associated with these accounts are
similar to those charged for corporate card and purchasing card accounts.
 
  The Company's products also include fleet cards designed for use by medium
to large companies. This MasterCard product is designed for companies with
mobile employees requiring specific reporting information and flexibility in
card spending.
 
  The Company's products also include business cards designed for use by small
to medium companies for routine business purchases, including travel and
entertainment expenditures and equipment and supply purchases. Business cards
offer a revolving line of credit to cardmembers at a floating interest rate
which adjusts monthly based upon the prime rate determined on a specified
date.
 
  In December 1997, the Company sold its share of PHH/Paymentech L.L.C., a
Delaware limited liability company formed in January 1997, to PHH Vehicle
Management Services Corporation's ("PHH") new parent company, Cendant
Corporation, for $30.0 million. The Company will continue its relationship as
the exclusive issuer of corporate fleet cards for PHH.
 
  The Company competes with national, regional and other issuers of commercial
cards. In seeking funding from the public, the Company faces competition from
banks, savings institutions, money market funds, credit unions and a wide
variety of other entities that take deposits and/or sell debt securities. The
primary methods of funding Financial Services include issuing certificates of
deposit and other borrowings. Financial Services' liquidity is invested in
overnight reverse repurchase agreements and other short-term investments.
Financial
 
                                      11
<PAGE>
 
Services' Asset and Liability Committee, consisting of executive management,
reviews and manages all funding and liquidity decisions. The Company has an
agreement with a third-party vendor for data processing services in connection
with the Company's commercial card business.
 
EMPLOYEES
 
  At June 30, 1998, the Company and its subsidiaries had approximately 1,280
employees. The Company views current employee relations to be satisfactory.
None of the Company's employees are covered under collective bargaining
agreements.
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
  See Item 10 of this Form 10-K
 
REGULATION OF FINANCIAL SERVICES
 
  Financial Services is an industrial loan corporation chartered under the
laws of the State of Utah, the deposits of which are insured by the Bank
Insurance Fund (the "BIF") of the Federal Deposit Insurance Corporation
("FDIC") up to applicable limits. Financial Services is subject to
comprehensive regulation and periodic examination by the Utah Department of
Financial Institutions and the FDIC, as administrator of the BIF.
 
  The federal and state banking laws contain numerous provisions affecting
various aspects of the business and operations of Financial Services. The
following description of statutory and regulatory provisions, which is not
intended to be a complete description of these provisions or their effects on
Financial Services, is qualified in its entirety by reference to the
particular statutory or regulatory provisions or proposals.
 
 Holding Company Status
 
  Generally a company which controls a "bank," as defined in the Bank Holding
Company Act of 1956 (the "BHCA"), is required to register as a bank holding
company under the BHCA and becomes subject to regulation and examination as a
bank holding company by the Federal Reserve Board. The Company is not a bank
holding company under the BHCA, as a result of ownership of Financial Services
because Financial Services meets criteria to cause it to be exempt from the
definition of "bank" under the BHCA. However, the Company's indirect majority
shareholder, Banc One, is a bank holding company under the BHCA. As a bank
holding company, Banc One's activities and those of its banking and nonbanking
subsidiaries (including the Company) are limited to the business of banking
and activities closely related or incidental to banking. The Company's status
as a subsidiary of a bank holding company has not materially restricted,
curtailed or eliminated its current operations or activities, which generally
conform to these requirements. However, the Company's future operations,
investments and activities will be limited to the business of banking and may
be subject to prior approval by the Federal Reserve Board, so long as Banc One
owns a controlling interest in the Company's securities.
 
 Liability for Commonly-Controlled Institutions
 
  A depository institution insured by the FDIC can be held liable for any loss
incurred, or reasonably anticipated to be incurred, by the FDIC in connection
with the default of any commonly-controlled FDIC-insured institution, or any
assistance provided by the FDIC to such commonly-controlled institution which
is in danger of default. All FDIC-insured depository institutions controlled
by Banc One are, and, following the Banc One Merger, all FDIC-insured
depository institutions controlled by Bank One will be, insured depository
institutions under common control with Financial Services for purposes of this
statutory provision.
 
 Dividends and Transactions with Affiliates
 
  There are various limitations under federal and Utah law on the extent to
which Financial Services can finance or otherwise supply funds, through
dividends, loans or otherwise, to the Company's and Financial
 
                                      12
<PAGE>
 
Services' other affiliates. These limitations include minimum regulatory
capital requirements, Utah requirements concerning the payment of dividends
out of net profits or surplus, and Sections 23A and 23B of the Federal Reserve
Act, governing transactions between an insured depository institution and its
affiliates.
 
 Capital Maintenance and FDICIA
 
  Financial Services is currently subject to capital adequacy guidelines
adopted by the FDIC, which provide generally for a minimum ratio of Tier 1
capital to risk-weighted assets (which are the credit risk equivalents of both
balance sheet items and certain off balance sheet items, such as stand-by
letters of credit) of 4%, and a minimum ratio of total capital (Tier 1 capital
plus Tier 2 capital) to risk-weighted assets of 8%. In addition, the
guidelines provide for a minimum leverage ratio (Tier 1 capital to total
assets) of 3% for the most highly-rated institutions, and not less than 4% for
all other institutions. The FDIC's risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banks that meet certain specified
criteria, including having the highest regulatory rating. Banks not meeting
these criteria are expected to operate with capital positions well above the
minimum ratios. Failure to meet applicable capital guidelines could subject
Financial Services to a variety of enforcement remedies available to federal
regulatory authorities, including, in the most severe cases, the termination
of deposit insurance by the FDIC or placing the institution into
conservatorship or receivership. As of June 30, 1998, Financial Services'
total risk-based capital ratio was 25.8%, its Tier 1 risk-based capital ratio
was 24.6% and its leverage ratio was 20.0%.
 
  In addition, under the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), the federal bank regulatory agencies are empowered, and in
certain cases required, to take "prompt corrective action" with respect to
banks that do not meet minimum capital requirements, including, in the most
severe cases, placing an institution into conservatorship or receivership. The
extent of the agencies' powers depends upon whether the institution in
question is "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Among other
things, an institution in one of the three undercapitalized categories is
required to submit a capital restoration plan to its appropriate federal
regulator, and the capital restoration plan will not be accepted without the
guaranty of the institution's parent company. As of June 30, 1998, Financial
Services met the capital requirements of a "well capitalized" institution.
 
  Financial Services may accept brokered deposits as part of its funding.
Under FDICIA, only "well capitalized" and "adequately capitalized" banks may
accept brokered deposits. "Adequately capitalized" banks, however, must first
obtain a waiver from the FDIC before accepting brokered deposits, and there
are limitations on the rates that may be paid on such deposits.
Undercapitalized institutions may not accept, renew or roll over brokered
deposits.
 
 Enforcement Powers of Federal and State Regulators
 
  The FDIC has broad enforcement powers over the institutions it regulates,
including the power to terminate deposit insurance, impose substantial fines
and other civil penalties and, in the most severe cases, to appoint a
conservator or receiver. In addition, the Utah Commissioner of Financial
Institutions also has broad enforcement powers under state law, including the
power to take possession of an institution in certain circumstances.
 
 Lending Activities
 
  Although Financial Services' activities are commercial and not consumer-
oriented, its activities as a credit card lender may be subject to regulation
under various federal laws including the Truth-in-Lending Act, the Equal
Credit Opportunity Act and the Soldiers' and Sailors' Civil Relief Act, as
well as state lending laws. Where applicable, regulators are authorized to
impose penalties for violations of these statutes and, in certain cases, to
order Financial Services to pay restitution to injured cardmembers.
Cardmembers may also bring actions for up to treble damages for certain
violations. Federal and state bankruptcy and debtor relief laws may also
affect Financial Services' ability to collect outstanding balances owed by
cardmembers who seek relief under these statutes.
 
                                      13
<PAGE>
 
CAUTIONARY STATEMENTS
 
  Information or statements provided by the Company herein and from time to
time may contain certain "forward-looking information," including information
relating to anticipated growth in earnings per share, anticipated returns on
equity, anticipated growth in net revenue, account origination and growth,
customer base, anticipated operations costs and employment growth, anticipated
marketing expense or anticipated credit and other losses. The cautionary
statements provided below are being made pursuant to the provisions of the
Private Securities Litigation Reform Act of 1995 (the "Act") and with the
intention of obtaining the benefits of the "safe harbor" provisions of the Act
for any such forward-looking information. Many of the following factors
discussed below as well as other factors have also been discussed in prior
filings made by the Company.
 
  Factors which could cause the Company's actual financial and other results
to differ materially from any results that might be projected, forecast,
estimated or budgeted by the Company in forward-looking statements include,
but are not limited to the following:
 
 Competition
 
  Intense and increasing competition exists in the industry from numerous
providers of financial products and services who may employ various
competitive strategies. Competitive pressures by other providers have made it
difficult for payment processors to pass through their costs, such as Visa and
MasterCard interchange and assessments, to customers and could require the
Company to absorb increases in costs to maintain its customer base. In
addition, financial institutions which compete with the Company may leverage
existing lending or other relationships with potential customers. The Company
also competes against issuers of commercial cards that are offering highly
competitive and attractive rates, including rates which are at or below rates
charged by the Company, in order to preserve or gain market share.
 
 Industry Consolidation
 
  Industry consolidation has enabled a few of the Company's competitors to
have access to significant capital, management, marketing and technological
resources that are equal to or greater than those of the Company. The highly
competitive nature of the payment processing industry combined with the
market's requirement that payment processors continue to invest in and provide
advanced and efficient technology to their customers has caused other payment
processors to leave the business or merge with other providers resulting in
significant consolidation in the industry.
 
 Acquisitions
 
  The Company's ability to identify and consummate acquisitions of merchant
portfolios, operating businesses and payment processing assets upon
satisfactory terms and the Company's ability to achieve a smooth and timely
integration of newly acquired assets and operating businesses and to achieve
anticipated synergies. The Company has relied in part on such acquisitions in
order to achieve greater economies of scale and to develop new types of
systems and expertise. However, the Company faces competition within the
industry for future acquisition and similar growth opportunities.
 
 Contingent Liabilities
 
  Increased chargeback and other losses due to the Company's contingent
liability for such losses through its merchants (such as where the cardholder
is dissatisfied with the product or service charged); costs associated with an
increase in the number of customers seeking protection under the bankruptcy
laws, resulting in chargeback and other losses; effects of fraud by third-
parties or customers; and increased collection costs associated with such
occurrences.
 
                                      14
<PAGE>
 
 Year 2000
 
  As a result of computer programs written using two digits rather than four
to define the applicable year, certain of the Company's computer systems may
require modifications in order to properly function beginning with the year
2000. While the Company has developed a plan to ensure that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter, the failure to make timely remediation of such systems could have
a material adverse effect on the Company's business, operations and financial
results. In addition, the Company maintains interface systems with third-party
vendors and large customers, and the Company could be adversely affected to
the extent that third parties with which it interfaces have not adequately
addressed their own year 2000 issues.
 
 Technology
 
  Systems delays, malfunctions and errors in the proprietary and third-party
systems and networks used by the Company for its payment processing services
may lead to processing delays, additional costs to the Company and, if not
corrected in a timely fashion, customer dissatisfaction, which could
ultimately affect the Company's customer base and the level of service it is
able to provide to its customers.
 
 New Products and Services
 
  The impact of difficulties or delays in the development, production, testing
and marketing of products or services, including the Company's commercial card
operations, and the impact of the costs and losses associated with such
difficulties or delays. These may include, without limitation, a failure to
implement new product or service programs when anticipated, the failure of
customers to accept these products or services when planned, losses associated
with the testing of new products or services or financial, legal or other
difficulties that may arise in the course of such implementation.
 
 Credit Card Acceptance
 
  The impact of a lack of growth or a decline in the number and scope of card-
based payment transactions, on a worldwide basis, and a lack of growth or a
decline in the types of industries and merchants that accept card-based
transactions as a method of payment.
 
 Seasonality
 
  The Company's revenue generally reflects the seasonal fluctuations that are
typically associated with traditional peaks in consumer spending. Such peaks
fall in different quarters for different divisions of the Company because of
the varying nature of the Company's market niches and the varying nature of
consumer trends in such markets.
 
 Regulation
 
  The effects of, and changes in, monetary and fiscal policies, laws and
regulations (financial, regulatory or otherwise), other activities of
governments, agencies and similar organizations, and social and economic
conditions, such as inflation, and changes in taxation of the Company's
earnings. For example, from time to time legislation is proposed by members of
Congress which, if adopted, would have the effect of additional disclosure to
consumers regarding interest rates and fees on credit card accounts by credit
card issuers, and in the most extreme cases, limiting the interest rate that
could be charged on such accounts.
 
ITEM 2. PROPERTIES
 
  First USA provides the Company with its principal office space in Dallas,
Texas consisting of approximately 170,000 square feet, pursuant to two
subleases. The Company's right to use such space expires upon the expiration
of First USA's underlying leases therefor in June 2005, unless First USA
exercises its right to extend
 
                                      15
<PAGE>
 
the leases for two successive five-year periods. See Item 13, "Certain
Relationships and Related Transactions." The Company leases additional
facilities from which certain other operations of the Company are conducted.
 
ITEM 3. LEGAL PROCEEDINGS
 
  As previously disclosed in the Company's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1998, December 31, 1997 and September 30, 1997
and in a Current Report on Form 8-K filed October 20, 1997, the Company is a
defendant in a putative class action suit commenced on October 10, 1997, by a
stockholder of the Company in the United States District Court, Northern
District of Texas, against the Company, certain officers and certain former
officers. On September 2, 1998, plaintiffs filed an amended complaint entitled
Raffaele Branca, Carl C. Conrad, and Michael P. Fuchs v. Paymentech, Inc.,
Pamela H. Patsley and David W. Truetzel. The amended complaint alleges, among
other things, that the defendants violated United States securities laws by
publicly issuing false and misleading statements and omitting material adverse
information regarding the Company's business. The amended complaint seeks to
represent all stockholders who purchased stock during the period from January
22, 1997, the date on which the Company issued a press release announcing its
financial results for the second quarter of fiscal year 1997, to September 24,
1997, the date on which the Company announced that it was restating and
revising its previously announced results for the fourth quarter of fiscal
year 1997. The amended complaint claims that as a result of such alleged
improper actions, the price of the Company's common stock was artificially
inflated at the time stockholders in the class acquired their stock. The
amended complaint seeks monetary damages for the losses the stockholders in
the class allegedly incurred. The defendants will file an amended motion to
dismiss directed to this new complaint. The Company has notified its insurance
carriers of this action. It is premature to determine whether the Company will
have any liability in the action or whether, if so, that liability will be
material.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  During the fourth quarter of fiscal 1998, no matters were submitted to a
vote of the stockholders of the Company.
 
                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
 
  The section entitled "Common Stock" of the Company's 1998 Annual Report to
Stockholders is incorporated herein by reference and filed as part of Exhibit
13.
 
ITEM 6. SELECTED FINANCIAL DATA
 
  The section entitled "Five-Year Statistical Summary" of the Company's 1998
Annual Report to Stockholders is incorporated herein by reference and filed as
part of Exhibit 13.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
  The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the Company's 1998 Annual Report to
Stockholders is incorporated herein by reference and filed as part of Exhibit
13.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
  The Company's interest sensitive investments consist primarily of variable
rate U.S. Government agency mortgage-backed securities. A 10% proportionate
increase or decrease in interest rates, as compared to current rates, would
not have a material impact on the Company's financial position, cash flows, or
results of operations. In addition, the Company does not hold or trade
derivative financial instruments or derivative commodity instruments.
 
                                      16
<PAGE>
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
  The Consolidated Financial Statements and Accompanying Notes and the
sections entitled "Report of Independent Auditors" and "Quarterly Financial
Information" of the Company's 1998 Annual Report to Stockholders is
incorporated herein by reference and filed as part of Exhibit 13.
 
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
 
  The sections entitled "Election of Directors" and "Incumbent Directors" of
the Company's definitive Proxy Statement are incorporated herein by reference.
 
  The following table sets forth certain information regarding the executive
officers of the Company and its subsidiaries as of September 14, 1998.
 
<TABLE>
<CAPTION>
NAME                     AGE POSITION
----                     --- --------
<S>                      <C> <C>
Pamela H. Patsley.......  41 President, Chief Executive Officer and Director
James W. Baumgartner....  38 President and Director of Financial Services
Michael P. Duffy........  39 Chief Operating Officer
Kathryn J. Kessler......  40 Chief Accounting Officer and Assistant Secretary
Philip E. Taken.........  37 Chief Administrative Officer, General Counsel and Secretary
</TABLE>
 
  Pamela H. Patsley. Ms. Patsley has been President, Chief Executive Officer
and a Director of the Company since December 1995. She has also served as
President and Chief Executive Officer of Paymentech Merchant Services, Inc.
since December 1991 and as Chairman of the Board of Financial Services since
August 1994. Ms. Patsley also served as Executive Vice President and Secretary
of First USA, Inc. from July 1989 until June 1997, and as Chief Financial
Officer from January 1987 to April 1994. Ms. Patsley is also a Director of
First Virtual, Adolph Coors Company and Coors Brewing Company.
 
  James W. Baumgartner. Mr. Baumgartner has been President and a Director of
Financial Services since June 1996. From 1992 to June 1996, Mr. Baumgartner
was Senior Vice President and General Manager of the commercial card business
and merchant bankcard business at First Bank System, Inc. From 1989 to 1992,
Mr. Baumgartner was Vice President and Controller of the Electronic Banking
Division at First Bank System, Inc. Mr. Baumgartner was formerly a Senior
Manager at Ernst & Young LLP, where he was employed from 1982 to 1989.
 
  Michael P. Duffy. Mr. Duffy has served as Chief Operating Officer since July
1997, and served as Group Executive of Direct Marketing Operations from
December 1995 through July 1997. From August 1992 to December 1995, Mr. Duffy
served as Vice President of Litle & Company, Inc. Mr. Duffy also served as
Vice President and Assistant Group Controller at Equifax Credit Information
Services from November 1991 to August 1992, and Assistant Vice President--
Finance and Administration at Equifax Credit Bureau Marketing from June 1990
to October 1991. Mr. Duffy serves on the board of NXT Corporation and is a
member of Visa USA, Inc. Card Operations Advisors Group.
 
  Kathryn J. Kessler. Ms. Kessler has been Chief Accounting Officer and
Assistant Secretary of the Company since September 1997, and served as Senior
Director of Finance from July 1996 through September 1997. From May 1982 to
July 1996, Ms. Kessler held various positions within the Finance Division of
Banc One. From 1980 to 1982, Ms. Kessler was associated with the accounting
firm of BDO Seidman L.L.P.
 
                                      17
<PAGE>
 
  Philip E. Taken. Mr. Taken has served as Chief Administrative Officer,
General Counsel and Secretary of the Company since July 1997, and was Senior
Vice President, General Counsel and Assistant Secretary from December 1995
through July 1997. Mr. Taken also served as Senior Vice President, General
Counsel and Assistant Secretary of First USA, Inc. from 1993 through June 1997
and was Vice President, General Counsel and Assistant Secretary from 1989 to
1993. From 1986 through 1989, Mr. Taken was associated with the law firm of
Hughes and Luce, L.L.P.
 
ITEM 11. EXECUTIVE COMPENSATION
 
  The section entitled "Executive Compensation" in the Company's definitive
Proxy Statement is incorporated herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
  The section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's definitive Proxy Statement is incorporated herein
by reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  The section entitled "Certain Transactions" in the Company's definitive
Proxy Statement is incorporated herein by reference.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
 a. Index to Financial Statements:
 
  (1) The following financial statements of Paymentech, Inc. and its
subsidiaries are incorporated by reference from the Company's 1998 Annual
Report to Stockholders:
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
   <S>                                                                     <C>
   Consolidated Balance Sheets at June 30, 1998 and 1997..................  29
   Consolidated Statements of Income for each of the three years in the
    period ended June 30, 1998............................................  30
   Consolidated Statements of Changes in Stockholders' Equity for each of
    the three years in the period ended June 30, 1998.....................  31
   Consolidated Statements of Cash Flows for each of the three years in
    the period ended June 30, 1998........................................  32
   Notes to Consolidated Financial Statements.............................  33
   Report of Independent Auditors.........................................  47
</TABLE>
 
  (2) The following consolidated financial statement schedule of Paymentech,
Inc. and its subsidiaries is included in Item 14(d):
 
    No financial statement schedules are required to be filed.
 
  (3) Listing of Exhibits
 
    The following exhibits are incorporated by reference or filed herewith:
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                               DESCRIPTION
 -------                              -----------
 <C>     <S>
  3.1    Certificate of Incorporation of the Company, as amended, filed as
         Exhibit 3.1 to the Company's Registration Statement on Form S-1 (No.
         333-262) (the "Registration Statement") and incorporated by reference
         herein.
</TABLE>
 
                                      18
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER DESCRIPTION
 ------------------
 <C>   <S>
  3.2  By-Laws of the Company, filed as Exhibit 3.2 to the Company's Annual
       Report on Form 10-K for the fiscal year ended June 30, 1997 and
       incorporated by reference herein.
 10.1  Intercompany Services Agreement between the Company and First USA
       Management, Inc., filed as Exhibit 10.1 to the Company's Quarterly
       Report on Form 10-Q for the quarter ended March 31, 1996, and
       incorporated herein by reference.
 10.2  First Amendment to Intercompany Services Agreement, dated as of June 24,
       1997, among the Company, First USA Management, Inc. and First USA, filed
       as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the
       fiscal year ended June 30, 1997 and incorporated by reference herein.
 10.3  Registration Rights Agreement between the Company and Banc One, as
       successor to First USA, Inc., filed as Exhibit 10.2 to the Company's
       Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 and
       incorporated herein by reference.
 10.4  Tax Sharing Agreement between the Company and First USA, filed as
       Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
       quarter ended March 31, 1996 and incorporated herein by reference.
 10.5  Amended and Restated 1996 Stock Option Plan of the Company, filed as
       Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal
       year ended June 30, 1997 and incorporated by reference herein.
 10.6  First Amendment to the Amended and Restated 1996 Stock Option Plan of
       the Company, filed as Exhibit 10.1 to the Company's Quarterly Report on
       Form 10-Q for the quarter ended December 31, 1997 and incorporated
       herein by reference.
 10.7  Amended and Restated 1996 Restricted Stock Plan of the Company, filed as
       Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal
       year ended June 30, 1997 and incorporated by reference herein.
 10.8  First Amendment to the Amended and Restated 1996 Restricted Stock Plan
       of the Company, filed as Exhibit 10.1 to the Company's Quarterly Report
       on Form 10-Q for the quarter ended March 31, 1998 and incorporated by
       reference herein.
 10.9  Revolving Credit Agreement dated February 21, 1996 among the Company,
       the lenders listed therein and NationsBank of Texas N.A., as Agent,
       including the notes and guaranty related thereto, filed as Exhibit 10.6
       to the Registration Statement and incorporated by reference herein.
 10.10 Form of Amendment No. 1 to Revolving Credit Agreement dated October 30,
       1996, among the Company, the lenders listed herein and NationsBank of
       Texas, N.A., as Agent, filed as Exhibit 10.8 to the Company's
       Registration Statement on Form S-1 (No. 333-15861) and incorporated
       herein by reference.
 10.11 Deferred Compensation Plan of First USA, filed as Exhibit 4.3 to the
       Company's Registration Statement on Form S-8 (No. 333-06979) and
       incorporated by reference herein.
 10.12 Employee Stock Purchase Plan of the Company, filed as Exhibit 10.8 to
       the Company's Annual Report on Form 10-K for the fiscal year ended June
       30, 1996 and incorporated by reference herein.
 10.13 First Amendment to the Employee Stock Purchase Plan of the Company,
       filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
       the quarter ended March 31, 1998 and incorporated by reference herein.
 10.14 First USA Paymentech Retirement Savings Plan, filed as Exhibit 99.1 to
       the Company's Registration Statement on Form S-8 (No. 333-11249) and
       incorporated by reference herein.
 10.15 First USA Paymentech Supplemental Executive Retirement Plan, filed as
       Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal
       year ended June 30, 1996 and incorporated by reference herein.
</TABLE>
 
                                       19
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER DESCRIPTION
 ------ -----------
 <C>   <S>
 10.16 First Amendment to the Paymentech Supplemental Executive Retirement
       Plan, filed as Exhibit 10.3 to the Company's Quarterly Report on Form
       10-Q for the quarter ended March 31, 1998 and incorporated by reference
       herein.
 10.17 First USA Paymentech Savings Restoration Plan, filed as Exhibit 10.11 to
       the Company's Annual Report on Form 10-K for the fiscal year ended June
       30, 1996 and incorporated by reference herein.
 10.18 Sublease Incorporating Provisions of Lease, dated June 2, 1997, between
       First USA and the Company, filed as Exhibit 10.14 to the Company's
       Annual Report on Form 10-K for the fiscal year ended June 30, 1997 and
       incorporated by reference herein.
 10.19 Sublease Incorporating Provisions of Lease, dated June 2, 1997, between
       First USA and the Company, filed as Exhibit 10.15 to the Company's
       Annual Report on Form 10-K for the fiscal year ended June 30, 1997 and
       incorporated by reference herein.
 10.20 Amendment to Sublease Incorporating Provisions of Lease, dated as of
       July 10, 1997, between First USA and the Company, filed as Exhibit 10.16
       to the Company's Annual Report on Form 10-K for the fiscal year ended
       June 30, 1997 and incorporated by reference herein.
 10.21 Employment Agreement, dated as of June 27, 1997, between the Company and
       Pamela H. Patsley, filed as Exhibit 10.17 to the Company's Annual Report
       on Form 10-K for the fiscal year ended June 30, 1997 and incorporated by
       reference herein.
 10.22 Form of Employment Agreements, each dated as of June 27, 1997, between
       the Company and each named executive officer other than Ms. Patsley,
       filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for
       the fiscal year ended June 30, 1997 and incorporated by reference
       herein.
 11    Computation of Net Income Per Share (included in Note O to the Notes to
       the Consolidated Financial Statements in the Company's 1998 Annual
       Report to Stockholders, filed herewith as Exhibit 13 and incorporated by
       reference herein).
 13*   Sections entitled "Common Stock", "Five-Year Statistical Summary",
       "Management's Discussion and Analysis of Financial Condition and Results
       of Operations", "Report of Independent Auditors", and "Quarterly
       Financial Information" and the Consolidated Financial Statements and
       accompanying Notes in the Company's 1998 Annual Report to Stockholders.
 21*   Subsidiaries of the Company.
 23*   Consent of Ernst & Young LLP.
 27*   Financial Data Schedule.
</TABLE>
--------
* Filed herewith
 
  a. Reports on Form 8-K filed during the fourth quarter of fiscal year ended
June 30, 1998:
 
    None.
 
  b. Reports on Form 8-K filed subsequent to the fourth quarter of fiscal year
ended June 30, 1998:
 
  Report on Form 8-K filed August 28, 1998
  Item 5. Other Events
 
  c. Exhibits--Such exhibits as are indicated in the Listing of Exhibits as
being filed herewith are filed as exhibits to this report.
 
  d. Financial Statement Schedule--No financial statement schedules are
required or filed herewith.
 
 
                                       20
<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 REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
 
                                          Paymentech, Inc.
 
Dated: September 24, 1998
 
                                                   
                                          By:      /s/ Pamela H. Patsley
                                              ---------------------------------
                                                     PAMELA H. PATSLEY
                                               PRESIDENT AND CHIEF EXECUTIVE
                                                          OFFICER
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
AND IN THE CAPACITIES INDICATED ON SEPTEMBER  , 1998.
 
              SIGNATURE                        TITLE
              ---------                        -----

 
        /s/ John C. Tolleson           Chairman of the Board
-------------------------------------   
          JOHN C. TOLLESON

 
        /s/ Pamela H. Patsley          President, Chief Executive
-------------------------------------   Officer and Director
          PAMELA H. PATSLEY             (Principal Executive Officer)

 
       /s/ Kathryn J. Kessler          Chief Accounting Officer
-------------------------------------   (Principal Accounting
         KATHRYN J. KESSLER             Officer)

 
         /s/ Gene H. Bishop            Director
-------------------------------------
           GENE H. BISHOP

 
       /s/ William P. Boardman         Director
-------------------------------------
         WILLIAM P. BOARDMAN

 
          /s/ John B. McCoy            Director
-------------------------------------
            JOHN B. MCCOY

 
        /s/ Rupinder S. Sidhu          Director
-------------------------------------
          RUPINDER S. SIDHU

 
       /s/ Ronald G. Steinhart         Director
-------------------------------------
         RONALD G. STEINHART
 
 
                                      21
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 EXHIBIT                                                                   PAGE
 NUMBER                            DESCRIPTION                             NO.
 -------                           -----------                             ----
 <C>     <S>                                                               <C>
  3.1    Certificate of Incorporation of the Company, as amended, filed
         as Exhibit 3.1 to the Company's Registration Statement on Form
         S-1 (No. 333-262) (the "Registration Statement") and
         incorporated by reference herein.
  3.2    By-Laws of the Company, filed as Exhibit 3.2 to the Company's
         Annual Report on Form 10-K for the fiscal year ended June 30,
         1997 and incorporated by reference herein.
 10.1    Intercompany Services Agreement between the Company and First
         USA Management, Inc., filed as Exhibit 10.1 to the Company's
         Quarterly Report on Form 10-Q for the quarter ended March 31,
         1996, and incorporated herein by reference.
 10.2    First Amendment to Intercompany Services Agreement, dated as of
         June 24, 1997, among the Company, First USA Management, Inc.
         and First USA, filed as Exhibit 10.2 to the Company's Annual
         Report on Form 10-K for the fiscal year ended June 30, 1997 and
         incorporated by reference herein.
 10.3    Registration Rights Agreement between the Company and Banc One,
         as successor to First USA, Inc. filed as Exhibit 10.2 to the
         Company's Quarterly Report on Form 10-Q for the quarter ended
         March 31, 1996 and incorporated herein by reference.
 10.4    Tax Sharing Agreement between the Company and First USA, filed
         as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
         for the quarter ended March 31, 1996 and incorporated herein by
         reference.
 10.5    Amended and Restated 1996 Stock Option Plan of the Company,
         filed as Exhibit 10.5 to the Company's Annual Report on Form
         10-K for the fiscal year ended June 30, 1997 and incorporated
         by reference herein.
 10.6    First Amendment to the Amended and Restated 1996 Stock Option
         Plan of the Company, filed as Exhibit 10.1 to the Company's
         Quarterly Report on Form 10-Q for the quarter ended December
         31, 1997 and incorporated herein by reference.
 10.7    Amended and Restated 1996 Restricted Stock Plan of the Company,
         filed as Exhibit 10.6 to the Company's Annual Report on Form
         10-K for the fiscal year ended June 30, 1997 and incorporated
         by reference herein.
 10.8    First Amendment to the Amended and Restated 1996 Restricted
         Stock Plan of the Company, filed as Exhibit 10.1 to the
         Company's Quarterly Report on Form 10-Q for the quarter ended
         March 31, 1998 and incorporated by reference herein.
 10.9    Revolving Credit Agreement dated February 21, 1996 among the
         Company, the lenders listed therein and NationsBank of Texas
         N.A., as Agent, including the notes and guaranty related
         thereto, filed as Exhibit 10.6 to the Registration Statement
         and incorporated by reference herein.
 10.10   Form of Amendment No. 1 to Revolving Credit Agreement dated
         October 30, 1996, among the Company, the lenders listed herein
         and NationsBank of Texas, N.A., as Agent, filed as Exhibit 10.8
         to the Company's Registration Statement on Form S-1 (No. 333-
         15861) and incorporated herein by reference.
 10.11   Deferred Compensation Plan of First USA, filed as Exhibit 4.3
         to the Company's Registration Statement on Form S-8 (No. 333-
         06979) and incorporated by reference herein.
 10.12   Employee Stock Purchase Plan of the Company, filed as Exhibit
         10.8 to the Company's Annual Report on Form 10-K for the fiscal
         year ended June 30, 1996 and incorporated by reference herein.
</TABLE>
 
 
                                       22
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT                                                                   PAGE
 NUMBER                            DESCRIPTION                             NO.
 -------                           -----------                             ----
 <C>     <S>                                                               <C>
 10.13   First Amendment to the Employee Stock Purchase Plan of the
         Company, filed as Exhibit 10.2 to the Company's Quarterly
         Report on Form 10-Q for the quarter ended March 31, 1998 and
         incorporated by reference herein.
 10.14   First USA Paymentech Retirement Savings Plan, filed as Exhibit
         99.1 to the Company's Registration Statement on Form S-8 (No.
         333-11249) and incorporated by reference herein.
 10.15   First USA Paymentech Supplemental Executive Retirement Plan,
         filed as Exhibit 10.10 to the Company's Annual Report on Form
         10-K for the fiscal year ended June 30, 1996 and incorporated
         by reference herein.
 10.16   First Amendment to the Paymentech Supplemental Executive
         Retirement Plan, filed as Exhibit 10.3 to the Company's
         Quarterly Report on Form 10-Q for the quarter ended March 31,
         1998 and incorporated by reference herein.
 10.17   First USA Paymentech Savings Restoration Plan, filed as Exhibit
         10.11 to the Company's Annual Report on Form 10-K for the
         fiscal year ended June 30, 1996 and incorporated by reference
         herein.
 10.18   Sublease Incorporating Provisions of Lease, dated June 2, 1997,
         between First USA and the Company, filed as Exhibit 10.14 to
         the Company's Annual Report on Form 10-K for the fiscal year
         ended June 30, 1997 and incorporated by reference herein.
 10.19   Sublease Incorporating Provisions of Lease, dated June 2, 1997,
         between First USA and the Company, filed as Exhibit 10.15 to
         the Company's Annual Report on Form 10-K for the fiscal year
         ended June 30, 1997 and incorporated by reference herein.
 10.20   Amendment to Sublease Incorporating Provisions of Lease, dated
         as of July 10, 1997, between First USA and the Company, filed
         as Exhibit 10.16 to the Company's Annual Report on Form 10-K
         for the fiscal year ended June 30, 1997 and incorporated by
         reference herein.
 10.21   Employment Agreement, dated as of June 27, 1997, between the
         Company and Pamela H. Patsley, filed as Exhibit 10.17 to the
         Company's Annual Report on Form 10-K for the fiscal year ended
         June 30, 1997 and incorporated by reference herein.
 10.22   Form of Employment Agreements, each dated as of June 27, 1997,
         between the Company and each named executive officer other than
         Ms. Patsley, filed as Exhibit 10.18 to the Company's Annual
         Report on Form 10-K for the fiscal year ended June 30, 1997 and
         incorporated by reference herein.
 11      Computation of Net Income Per Share (included in Note O to the
         Notes to the Consolidated Financial Statements in the Company's
         1998 Annual Report to Stockholders, filed herewith as Exhibit
         13 and incorporated by reference herein).
 13*     Sections entitled "Common Stock", "Five-Year Statistical
         Summary", "Management's Discussion and Analysis of Financial
         Condition and Results of Operations", "Report of Independent
         Auditors", and "Quarterly Financial Information" and the
         Consolidated Financial Statements and accompanying Notes in the
         Company's 1998 Annual Report to Stockholders.
 21*     Subsidiaries of the Company.
 23*     Consent of Ernst & Young LLP.
 27*     Financial Data Schedule.
</TABLE>
--------
* Filed herewith
 
                                       23