<PAGE>
Certain confidential portions of this Exhibit were omitted by means of asterisks
in lieu of the text (the "Mark"). This Exhibit has been filed separately with
the Secretary of the Securities and Exchange Commission without the Mark
pursuant to the Company's request for confidential treatment pursuant to Rule
406 under the Securities Act of 1933, as amended.


                                                                   Exhibit 10.16

                                                                  Execution Copy

                                SERVICE AGREEMENT

                               DATED JULY 1, 2002

                                     BETWEEN

                    FIRST DATA MERCHANT SERVICES CORPORATION

                                       AND

                             IPAYMENT HOLDINGS, INC.

<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>         <C>                                                             <C>
ARTICLE 1   DEFINITIONS AND INTERPRETATION................................     2

ARTICLE 2   SERVICES......................................................     2

ARTICLE 3   ACQUIRED PORTFOLIOS AND MERGER OR CHANGE OF CONTROL...........     4

ARTICLE 4   PAYMENT FOR SERVICES..........................................     7

ARTICLE 5   DISPUTE RESOLUTION AND INDEMNIFICATION........................    10

ARTICLE 6   LIMITATION OF LIABILITY.......................................    11

ARTICLE 7   DISCLAIMER OF WARRANTIES......................................    11

ARTICLE 8   TERM OF AGREEMENT.............................................    12

ARTICLE 9   TERMINATION...................................................    12

ARTICLE 10  CONFIDENTIAL NATURE OF DATA...................................    15

ARTICLE 11  REPRESENTATIONS...............................................    17

ARTICLE 12  MISCELLANEOUS.................................................    17
</TABLE>


                                    EXHIBITS

<TABLE>
<S>               <C>
EXHIBIT A         SERVICES
EXHIBIT B         PRICING
EXHIBIT C         DEFINITIONS
EXHIBIT D         ARBITRATION
EXHIBIT E         INDEMNIFICATION
EXHIBIT F         CLEARING BANK AGREEMENT
EXHIBIT G         VERISIGN B2C GATEWAY TERMS AND CONDITIONS
EXHIBIT H         CINGULAR WIRELESS SERVICES TERMS AND CONDITIONS
EXHIBIT I         EMERCHANTVIEW(R) SERVICES TERMS AND CONDITIONS
EXHIBIT J         PERFORMANCE GUIDELINES
</TABLE>


                                       i
<PAGE>
                                SERVICE AGREEMENT

      This Service Agreement dated as of July 1, 2002 is between First Data
Merchant Services Corporation ("FDMS") and iPayment Holdings, Inc. ("Customer").
References to "Customer" throughout shall include Customer's Affiliates.

                                    RECITALS

      A. First Data Resources Inc. ("FDR"), an Affiliate of FDMS, and Beverly
Hills Acquisition Corp. ("BHAC"), an Affiliate of Customer, are parties to that
certain Service Agreement dated as of February 1, 2000, as amended by amendments
dated July 24, 2000 and June 22, 2001 (the "BHAC Service Agreement"), pursuant
to which FDR performs certain data processing and other related services in
connection with Merchant Transactions for the benefit of BHAC.

      B. iPayment Technologies, Inc., an Affiliate of Customer, purchased
certain Merchant Accounts that are currently processed by FDR pursuant to that
certain Service Agreement between FDR and Humboldt Bank dated as of November 1,
1994, as amended by amendments dated November 12, 1996, March 1, 1998, November
1, 1998 and May 25, 2000 (the "Humboldt Agreement"), pursuant to which FDR
performs certain data processing and other related services in connection with
Merchant Transactions for the benefit of iPayment Technologies, Inc.

      C. FDMS and The Northern Trust Company ("Northern"), as assignees of
AmTrade International Bank of Georgia ("AmTrade"), and First National
Processing, Inc. (formerly known as First Acquisition Company) ("FAC"), as
assignee of 1st National Processing, Inc. ("FNP"), are parties to that certain
Marketing Agreement dated as of July 16, 1999 between AmTrade and FNP, as
subsequently amended on January 5, 2001 (the "FNP Agreement"). Under the FNP
Agreement, FDMS provides FAC with certain data processing and other related
services in connection with Merchant Transactions for the benefit of FAC
("Merchant Processing Services"), and Northern provides FAC with certain
sponsorship, clearing and other related services in connection with Merchant
Accounts and Transactions ("Clearing Services"). The parties contemplate that
the Clearing Services and the FNP Agreement will be terminated within six (6)
months of the execution of this Agreement, during which time Customer will
attempt to transition the Clearing Services to a new sponsoring financial
institution under a separate agreement.

      D. FDMS has assumed FDR's rights and obligations and Customer has assumed
BHAC's and certain of Humboldt's rights and obligations under the BHAC Service
Agreement and the Humboldt Agreement, respectively.

      E. FDMS and Customer wish to terminate the BHAC Agreement, the Humboldt
Agreement and the Merchant Processing Services portions of the FNP Agreement and
to enter into this Agreement to provide for the continuing provision of data
processing and related services by FDMS in connection with Customer's Accounts.
The parties intend for all terms of this Agreement to go into effect as of the
date hereof, except for some of the pricing provisions which will go into


                                       1
<PAGE>
effect on October 1, 2002.

      F. FDMS is willing to perform certain data processing and related services
with respect to Customer's Accounts in accordance with the terms and conditions
of this Agreement.

                                    AGREEMENT

      In consideration of the foregoing and the covenants and conditions
contained herein, FDMS and Customer agree as follows:

                                   ARTICLE 1
                         DEFINITIONS AND INTERPRETATION

      1.1 DEFINITIONS. Unless the context otherwise requires, capitalized terms
used herein shall have the meanings specified in Exhibit C.

      1.2 INTERPRETATION. Each definition in this Agreement includes the
singular and the plural and the word "including" means "including but not
limited to." References to any statute or regulation means such statute or
regulation as amended at the time and includes any successor statute or
regulation. The section headings in this Agreement are solely for convenience
and shall not be considered in its interpretation. The Exhibits referred to
throughout this Agreement are attached hereto and are incorporated herein.
Except as otherwise stated, references to Articles, Sections, Exhibits and
Attachments mean the Articles, Sections, Exhibits and Attachments of this
Agreement.

                                   ARTICLE 2
                                    SERVICES

      2.1 SERVICES AND CLEARING BANK.

            (a) FDMS will make available to and perform for Customer those
services described in Exhibit A which are applicable to Customer's Accounts or
as specifically provided in Exhibit A (the "Services"). Exhibit A and any
document or service referred to in Exhibit A are subject to periodic revision by
FDMS, subject to the Performance Guidelines described in Section 2.5, to reflect
changes (i) to the FDMS System or the services provided by FDMS and offered
generally to FDMS customers and (ii) in the specific Services provided to
Customer; provided, however, that FDMS will not implement any changes or
improvements to the FDMS System if such action will materially degrade the
quality of the services being provided to Customer by FDMS hereunder unless such
change is required by the VISA or MasterCard rules and regulations.

            (b) Customer will at all times during the Term have in place
contractual arrangements with one or more financial institution members of VISA
and/or MasterCard (each a


                                       2
<PAGE>
"Clearing Bank") for clearing and settlement of transactions with respect to all
of Customer's Accounts. Customer will cause each Clearing Bank to execute a
clearing bank agreement (each a "Clearing Bank Agreement") with FDMS in the form
set forth as Exhibit F or such other arrangement as may be agreed to between
FDMS and Clearing Bank. Customer will pay to FDMS any amount due to FDMS by a
Clearing Bank pursuant to a Clearing Bank Agreement that is not paid by a
Clearing Bank with respect to Customer's Accounts within twenty-four (24) hours
after written notice to Customer and such Clearing Bank.

      2.2 COMMUNICATION LINKS. FDMS periodically will install, provide or cause
to be installed or provided the means for communicating data from its facilities
or equipment to the facilities or equipment of Customer, and third parties
designated by Customer, as FDMS reasonably determines is desirable to perform
this Agreement. The method of transmission and the media employed will be
determined jointly by FDMS and Customer taking into consideration relevant
factors such as traffic type, inbound and outbound message sizes, traffic
loading distribution, and the equipment or devices which are or may be used.

      2.3 COMPLIANCE WITH LAW.

            (a) FDMS and Customer acknowledge that Customer is subject to a
variety of federal, state and local laws, regulations and judicial and
administrative decisions and interpretations applicable to its Transaction Card
business (the "Legal Requirements"). The parties shall cooperate with each other
in resolving issues relating to compliance with the Legal Requirements in
accordance with the provisions of this Section 2.3.

            (b) Customer is solely responsible for (i) monitoring and
interpreting the Legal Requirements, (ii) determining the particular actions,
disclosures, formulas, calculations and procedures required for compliance with
the Legal Requirements (whether to be performed by FDMS or by Customer) and
(iii) maintaining an ongoing program for compliance with the Legal Requirements.
In addition, Customer is solely responsible for reviewing and selecting the
parameter settings and programming features and options within the FDMS System
that will apply to Customer's Transaction Card programs, and for determining
that its selection of such settings, features and options is consistent with the
Legal Requirements and with the terms and conditions of Customer's Accounts. In
making such determinations, Customer may rely on the written description of such
settings, features and options in the User Manuals, customer bulletins and other
system documentation provided by FDMS to Customer.

            (c) FDMS is solely responsible for compliance with all laws,
regulations and judicial and administrative decisions applicable to FDMS as a
third party provider of data processing services. FDMS will not be responsible
for any violation by Customer of a Legal Requirement to the extent such
violation occurs as a result of performance by FDMS of the Services in
accordance with instructions of Customer or written procedures provided by or
approved by Customer.

            (d) Subject to the terms of Article 10, FDMS and Customer shall
cooperate with


                                       3
<PAGE>
each other in providing information or records in connection with examinations,
requests or proceedings of each other's regulatory authorities.

      2.4 DEPENDENCE ON PERFORMANCE BY OTHERS. The obligation of FDMS to timely
perform the Services is expressly subject to the timely performance by Customer,
and third party vendors Customer engages, of their obligations and
responsibilities, but only to the extent that failure to so perform directly
affects FDMS's ability to timely perform hereunder or the cost to FDMS of
performing hereunder.

      2.5 PERFORMANCE GUIDELINES. While this Agreement is in effect, FDMS shall
at all times provide the services in accordance with the performance guidelines
set forth in Exhibit J (the "Performance Guidelines"). During each calendar
month, FDMS agrees to provide Customer with a monthly report setting forth the
Performance Guidelines and FDMS' performance during the just concluded calendar
month relative to the Performance Guidelines. Upon request, FDMS will review the
Performance Guidelines with Customer monthly. If FDMS fails to meet the same
Performance Guideline in any three (3) consecutive months, FDMS will credit or
pay to Customer one percent (1%) of the fees paid by Customer to FDMS under this
Agreement during such third failed month as liquidated damages. If FDMS fails to
meet the same two (2) Performance Guidelines in any three (3) consecutive
months, FDMS will credit or pay to Customer two percent (2%) of the fees paid by
Customer to FDMS under this Agreement during such third failed month as
liquidated damages. If FDMS fails to meet the same three (3) Performance
Guidelines in any three (3) consecutive months, FDMS will credit or pay to
Customer three percent (3%) of the fees paid by Customer to FDMS under this
Agreement during such third failed month as liquidated damages. If FDMS fails to
meet any one of Performance Guidelines numbers 1 (Authorization System
Availability), 4 (Postings, Monetary/Non-Monetary), 5 (Settlement Screens) or 7
(Daily ACH File Transmissions), as set forth in Exhibit J, in any four (4)
consecutive months, Customer, at its election, may terminate this Agreement
without penalty; provided, that this termination option is exercised within
sixty (60) days following the end of such fourth month and provided that such
termination shall become effective on a date specified by Customer, which date
shall not be later than nine (9) months after Customer's delivery to FDMS of a
written notice of its intention to so terminate this Agreement. FDMS' failure to
meet a Performance Guideline due to any cause beyond its control shall not be
considered to be a failure for which FDMS shall be responsible under this
Agreement.

      2.6 SIGN-UP BONUS. FDMS shall pay to Customer a sign-up bonus in the
amount of [****] dollars ($[****]) within ten (10) Business Days after the
execution of this Agreement. FDMS shall pay the signing bonus by wire transfer
to an account designated in writing by Customer.

                                   ARTICLE 3
               ACQUIRED PORTFOLIOS AND MERGER OR CHANGE OF CONTROL



      3.1  ACQUIRED FDMS PORTFOLIOS.  If Customer or any of its Affiliates
("Purchaser")  Acquires any Customer Accounts for which FDMS or any of its
Affiliates is then providing services similar to the Services (an "FDMS
Portfolio") pursuant to a pre-existing service agreement (an "Existing FDMS
Agreement") that has a then-current term that is longer that the remaining
then-current Original Term or Renewal Term of this Agreement, FDMS or its
Affiliates shall continue to perform the services pursuant to the Existing FDMS
Agreement which shall remain in effect through the expiration of its
then-current term.  If, however, Purchaser Acquires an FDMS Portfolio and the
then-current Original Term or Renewal Term of this Agreement is longer than the
remaining then-current term of the Existing FDMS Agreement, then Customer may
elect, in its sole discretion, to pay to FDMS an NPV Payment, as described
below, and have FDMS perform services with respect to the FDMS Portfolio under
the terms of this Agreement; provided, however, that nothing herein will (i)
require Customer to make such election or (ii) prevent Customer from keeping the
Existing FDMS Agreement in effect through the expiration of its then-current
term.  The "NPV Payment" will be calculated as the net present value (using a
discount rate of ten percent (10%) annually) of the difference between (i) the
amount that the FDMS Portfolio would have paid to FDMS for services under the
remaining term of the Existing FDMS Agreement, and (ii) the amount that the FDMS
Portfolio will pay to FDMS for Services under this Agreement for the same time
period, based on the growth rate, if any, of the FDMS Portfolio during the last
six (6) full calendar months prior to Purchaser's Acquisition of the FDMS
Portfolio as compared to the same six (6) calendar month period from the
immediately preceding calendar year(s).  Upon the transfer of the FDMS Portfolio
to Customer on the FDMS System, the FDMS Portfolio shall be processed in
accordance with the terms of this Agreement.  FDMS shall not include the volumes
from the FDMS Portfolio in any volume based priced schedules set forth in
Exhibit B until such time as there is a transfer of the FDMS Portfolio to
Customer on the FDMS system.  Such a transfer of the FDMS Portfolio shall occur
on a mutually agreed upon date.  In connection with such transfer, Customer
shall bear the costs and expenses of such transfer, at the then-standard hourly
rates of FDMS plus related material charges.  If Purchaser Acquires an FDMS
Portfolio and the Existing FDMS Agreement contains a provision that requires
FDMS' consent before the Existing FDMS Agreement can be assigned to Customer,
FDMS (i) will not unreasonably withhold its consent to such assignment and (ii)
will waive any consent fee specifically set forth in such Existing FDMS
Agreement as consideration for FDMS giving its consent to an assignment of such
Existing FDMS Agreement.


[****] Represents material which has been redacted and filed separately with the
Commission pursuant to a request for confidential treatment pursuant to Rule 406
under the Securities Act of 1933, as amended.


                                       4
<PAGE>


      3.2 ACQUIRED NON-FDMS PORTFOLIO

      (a) If Purchaser acquires any Merchant accounts that require services
substantially similar to the Services but for which FDMS or any of its
Affiliates is not then providing such services (a " Non-FDMS Portfolio"),
Customer may elect, in its sole discretion, to convert such Non-FDMS Portfolio
to the FDMS System.  If Customer elects to convert such Non-FDMS Portfolio to
the FDMS System, FDMS shall perform Services pursuant to the terms of and under
this Agreement for such Non-FDMS Portfolio and FDMS shall pay or credit to
Customer a rebate as described in the following sentence.  FDMS shall rebate to
Customer an amount equal to the product of [****] multiplied by the lesser of:
(i) the number of ETC Tickets (which are identified in Exhibit "B" and currently
billed as item numbers 63 and 270) processed by FDMS for the Non-FDMS Portfolio
after conversion to the FDMS System, or (ii) the number of Authorizations (as
defined in Section 4.4) processed by FDMS for the Non-FDMS Portfolio after
conversion to the FDMS System.  The rebates will be aggregated and paid or
credited to Customer quarterly.  For purposes of this Section 3.2, Customer must
convert at least [****] of the front-end and [****] of the back end and other
processing for the Non-FDMS Portfolio to the FDMS System in order to receive the
rebates contemplated herein.  In connection with any conversion of a Non-FDMS
Portfolio to the FDMS System, FDMS shall have a reasonable period of time to
perform due diligence and propose a conversion plan.  Unless the parties
mutually agree otherwise, Customer shall pay all charges for conversion of each
Non-FDMS Portfolio including (i) FDMS's standard conversion charges (at FDMS
cost plus related material charges), and (ii) any charges (at then-current
hourly rates plus related materials charges) associated with any customization
of the FDMS System specified in the conversion plan applicable to each such
Non-FDMS Portfolio.  Any such customization shall remain solely the property of
FDMS, and Customer shall acquire no right, claim, or interest in the FDMS System
or any customization thereof during or after the Term.



[****] Represents material which has been redacted and filed separately with
the Commission pursuant to a request for confidential treatment pursuant to
Rule 406 under the Securities Act of 1933, as amended.


                                       5
<PAGE>
            (b) Customer shall notify FDMS, in writing, within thirty (30) days
after the execution of any binding agreement to Acquire a [****] Portfolio
that Customer plans to convert to the FDMS System.

      3.3 DISPOSITION OF PORTFOLIOS. Upon the sale or other disposition by
Customer of any portion of Customer's Accounts (the "Former Accounts"), FDMS
will no longer be obligated to provide Services for the Former Accounts for
Customer pursuant to this Agreement and Customer and FDMS agree that (i) there
shall be no reduction in the Year 1 Minimum Authorizations, Year 2 Minimum
Authorizations, Year 3 Minimum Authorizations, Year 4 Minimum Authorizations or
the Minimum Authorizations set forth in Section 4.4, and (ii) FDMS will provide
Deconversion services, as more fully described in Section 4.8, with respect to
such Former Accounts.

      3.4 MERGER OR CHANGE OF CONTROL. If Customer is merged into an Entity
that, prior to such merger, was not an Affiliate of Customer, and such Entity is
the survivor of such merger (the "Surviving Entity"), then (i) the provisions of
this Agreement shall continue to apply to all Customer Accounts which were
subject to this Agreement prior to such merger, but shall not apply to any
Customer Accounts of the Surviving Entity or any of its Affiliates which were
not subject to this Agreement prior to such merger and (ii) the Surviving
Entity, as Customer's successor-in-interest, shall continue to be bound by
Customer's obligations hereunder. If there is a Change of Control of Customer,
then the provisions of this Agreement shall continue to apply to all Customer
Accounts of Customer and its Affiliates immediately prior to such Change of
Control, but shall not apply to any Customer Accounts of the Entity or Entities
that Acquire Control of Customer which were not subject to this Agreement prior
to such Change of Control.

                                   ARTICLE 4
                              PAYMENT FOR SERVICES


[****] Represents material which has been redacted and filed separately with
the Commission pursuant to a request for confidential treatment pursuant to
Rule 406 under the Securities Act of 1933, as amended.


                                       6
<PAGE>
      4.1 PROCESSING FEES.

            (a) Effective October 1, 2002, Customer shall pay FDMS the
Processing Fees set forth in Exhibit B to this Agreement. Beginning on the date
hereof and ending on September 30, 2002, Customer shall pay FDMS the prices set
forth in the [****], respectively. Notwithstanding the two immediately preceding
sentences, effective on the date hereof, Customer shall pay FDMS the Processing
Fees set forth in Exhibit B to this Agreement for the line items designated with
a pound sign (#). For each Processing Year after Processing Year 2, FDMS may
increase the Processing Fees designated with an asterisk (*) in Exhibit B to
this Agreement which were in effect for the immediately preceding Processing
Year by an amount not to exceed [****] percent ([****]) of the percentage
increase in the Consumer Price Index ("CPI"), during the period described below.
For purposes of this paragraph, the CPI shall be the index compiled by the
United States Department of Labor's Bureau of Labor Statistics, Consumer Price
Index for All Urban Consumers ("CPI-U") having a base of 100 in 1982-1984. The
percentage increase in the CPI shall be calculated and written notice given to
Customer as of ninety (90) days in advance of the effective date of the
Processing Fees increase, by comparing the CPI using a twelve (12) month period
ending as of the date of calculation and expressing the increase in the CPI
through the twelve (12) month period as a percentage. If the federal government
changes its definition of or method of calculating the CPI-U or its applicable
components during the Term of this Agreement, the parties will negotiate in good
faith to determine the changes, if any, that should be made to this annual
adjustment provision to reflect such CPI-U changes.

            (b) In order for Customer to evaluate the Processing Fees to be
charged under this Agreement effective October 1, 2002 as contemplated by
Sections 4.1(a) and 9.2(b) herein, FDMS will prepare and provide to Customer two
separate invoices for the Services provided during the months of July, August
and September 2002. One invoice will show the amount of processing fees actually
due and owing from Customer and billed under the [****], and the other invoice
will show the Processing Fees that would have been due and owing from Customer
if they had been billed under this Agreement. FDMS will deliver the invoices for
September 2002 on or before October 21, 2002.

      4.2 SPECIAL FEES. Customer shall pay to FDMS the Special Fees for amounts
paid to third-party providers, computed in accordance with Exhibit B to this
Agreement. Any price change for Special Fees shall be effective on the effective
date of the increase or decrease to FDMS. FDMS will give written notice of each
such increase or decrease to Customer as soon as practicable following FDMS's
first awareness of any such increase or decrease.

      4.3 NEW PRODUCTS. If FDMS commences to offer any new services or products
generally to its customers and Customer elects to use any such service or
product, or if Customer elects to use services or products which Customer had
not previously elected to use, then FDMS shall provide such service or product
at FDMS's then-current fees and charges for such service or product or such


[****] Represents material which has been redacted and filed separately with
the Commission pursuant to a request for confidential treatment pursuant to
Rule 406 under the Securities Act of 1933, as amended.


                                       7
<PAGE>
other price as FDMS and Customer may mutually agree.

      4.4 MINIMUM AUTHORIZATION COMMITMENT. In Processing Year 1, Customer will
submit to FDMS for processing authorization inquiries (which are identified in
Exhibit "B" and currently billed as items number 300, 305, 317, 318, 1101, 1102,
6601, 6602, 6603, 6604, 6605, 6606, 6607, 6611, 6621 and 6624 (which numbers may
change during the Term of this Agreement), and collectively referred to as the
"Authorizations") in an amount equal to [****] ([****]) Authorizations (the
"Year 1 Minimum Authorizations"). In Processing Year 2, Customer will submit to
FDMS for processing at least [****] ([****]) Authorizations (the "Year 2 Minimum
Authorizations"). In Processing Year 3, Customer will submit to FDMS for
processing at least [****] ([****]) Authorizations (the "Year 3 Minimum
Authorizations"). In Processing Year 4, Customer will submit to FDMS for
processing at least [****] ([****]) Authorizations (the "Year 4 Minimum
Authorizations"). In each Processing Year after Processing Year 4, Customer will
submit to FDMS for processing Authorizations at least equal to one hundred
percent (100%) of the actual Authorizations submitted during the immediately
preceding Processing Year (the "Minimum Authorizations"). FDMS shall calculate
the total Authorizations submitted by Customer during each Processing Year (the
"Total Annual Authorizations") within ninety (90) days after the end of each
Processing Year and will, after ten (10) days written notice to Customer, draw
upon Customer's account pursuant to Section 4.5 of this Agreement for the dollar
amount, if any, equal to the product of (i) the amount by which the Year 1
Minimum Authorizations, Year 2 Minimum Authorizations, Year 3 Minimum
Authorizations, Year 4 Minimum Authorizations or the Minimum Authorizations, as
applicable, for the Processing Year exceed the Total Annual Authorizations for
the Processing Year, multiplied by (ii) [****] ([$****]). For the avoidance of
doubt and based on economic assumptions material to each party underlying this
transaction, Customer and FDMS expressly agree that Customer shall submit to
FDMS Authorizations each Processing Year in an amount at least equal to the Year
1 Minimum Authorizations, Year 2 Minimum Authorizations, Year 3 Minimum
Authorizations, Year 4 Minimum Authorizations or the Minimum Authorizations, as
applicable, until this Agreement is terminated by Customer solely pursuant to
the provisions of Section 9.2 of this Agreement or until FDMS terminates this
Agreement and invokes compensatory payments pursuant to Section 9.4 of this
Agreement. Further, and for the avoidance of doubt, the parties agree that in
order for an authorization inquiry submitted to FDMS to be counted in the total
number of Authorizations for purposes of this Agreement, FDMS must also perform
core merchant settlement services with respect to the Transaction so authorized,
including Interchange Settlement and Merchant statementing.

      4.5 METHOD OF PAYMENT. To facilitate the payment of Processing Fees,
Special Fees, compensatory payments pursuant to Section 9.4 of this Agreement
and any other fee, tax, interest payment, charge or amount due or payable to
FDMS under this Agreement, Customer shall provide FDMS with access to a bank
account of Customer's funds not requiring signature including notifying FDMS of
the demand deposit account number and transit routing number for the account.
Except with respect to amounts in dispute pursuant to Section VII of Exhibit "B"
to this Agreement, FDMS

[****] Represents material which has been redacted and filed separately with
the Commission pursuant to a request for confidential treatment pursuant to
Rule 406 under the Securities Act of 1933, as amended.


                                       8
<PAGE>
may draw upon the bank account to pay fees, taxes, interest payments, charges,
or any other amount due or payable to FDMS under the terms of this Agreement.
The detailed records of the amounts drawn on the account of Customer will be
provided by FDMS to Customer on a monthly basis. FDMS shall be under no
obligation to effect any conversion until the account has been established as
provided herein.

      4.6 INTEREST. If FDMS is unable to obtain payment of Processing Fees,
Special Fees, compensatory payments pursuant to Section 9.4 of this Agreement or
any other fee, tax, interest payment, charge or amount due or payable to FDMS
under this Agreement at the time provided for payment under this Agreement, the
unpaid amount shall bear interest at the rate equal to the lesser of (i) six
percent (6%) per annum, or (ii) the maximum rate permitted by applicable law,
from the date on which payment should have been available until the date on
which FDMS receives the payment.

      4.7 TAXES.

            (a) Customer shall pay all taxes and similar charges, however
designated, which are imposed by any governmental authority by reason of FDMS's
fulfillment of its obligations hereunder except for income taxes payable by FDMS
on amounts earned by FDMS or property taxes payable by FDMS on property owned by
FDMS. Without limiting the foregoing, Customer shall promptly pay FDMS for
amounts actually paid or required to be collected or paid by FDMS.

            (b) Customer authorizes FDMS to calculate the total amount of sales
taxes due from Customer hereunder. Customer shall supply FDMS with all
information necessary for FDMS to compute and remit the taxes (including any tax
exempt certificate, claim letter, or similar documentation). FDMS shall remit
the sales taxes to the appropriate taxing authority on behalf of Customer based
on the information available to FDMS. If FDMS underpays or overpays such sales
taxes, Customer shall be responsible for promptly paying any shortfalls
(including any penalties or interest) and for collecting any refunds from the
appropriate taxing authority; provided, however, if such underpayment is solely
the result of the negligence of FDMS, FDMS shall be responsible for any
penalties associated with such underpayment. FDMS will give written notice of
any applicable tax to Customer as soon as practicable following FDMS's first
awareness of any such tax.

      4.8 DECONVERSION.

            (a) Notwithstanding anything contained herein to the contrary, upon
(i) expiration or termination of this Agreement, (ii) transfer by Customer of
any accounts from the FDMS System to a third party, (iii) abandonment or
deletion by Customer of a Clearing Bank (or by FDMS, MasterCard or VISA on
behalf of Customer or a Clearing Bank) of any BIN or ICA of Customer relating to
accounts from the FDMS System, or (iv) manual removal by Customer or a Clearing
Bank of any accounts from the FDMS System, Customer and FDMS shall mutually,
expeditiously, and in good faith, agree upon and document a project plan for any
such Deconversion (a "Deconversion Plan").


[****] Represents material which has been redacted and filed separately with
the Commission pursuant to a request for confidential treatment pursuant to
Rule 406 under the Securities Act of 1933, as amended.



                                       9
<PAGE>
            (b) As part of the Deconversion Plan, FDMS shall perform (i) at the
request of Customer, all Services being rendered by FDMS under this Agreement at
the time of expiration or termination in accordance with the then-current
Processing Fees and Performance Guidelines for a period of up to one hundred
eighty (180) days, and (ii) all other services necessary to accomplish the
Deconversion of affected accounts, including systematic stripping and removal of
all such account information from the FDMS System, at FDMS's then-current rates.

                                   ARTICLE 5
                     DISPUTE RESOLUTION AND INDEMNIFICATION

      5.1 INFORMAL DISPUTE RESOLUTION. Any controversy or claim between FDMS and
Customer arising from or in connection with this Agreement whether based on
contract, tort, common law, equity, statute, regulation, order or otherwise
("Dispute"), shall be resolved as follows:

            (a) upon written request of either FDMS or Customer, the parties
shall each appoint a representative to meet and attempt to resolve such Dispute;

            (b) the designated representatives shall meet as often as the
parties reasonably deem necessary to discuss the problem in an effort to resolve
the Dispute without the necessity of any formal proceeding; and

            (c) arbitration pursuant to Exhibit D for the resolution of a
Dispute may not be commenced until the earlier of:

                  (i) the date that the designated representatives conclude in
good faith that amicable resolution through continued negotiation of the matter
does not appear likely; or

                  (ii) thirty (30) days after the date that either party
requested negotiation of the Dispute pursuant to Section 5.1(a) of this
Agreement.

            (d) Notwithstanding the foregoing, this Section 5.1 shall not be
construed to prevent a party from instituting formal proceedings at any time to
avoid the expiration of any applicable limitations period, to preserve a
superior position with respect to other creditors or to seek temporary or
preliminary injunctive relief pursuant to Section 10.7.

            (e) The parties acknowledge and agree that time is of the essence in
performing their respective obligations under this Agreement.

      5.2 ARBITRATION. If Customer and FDMS are unable to resolve any Dispute in
the manner set forth in Section 5.1, such Dispute shall be submitted to
arbitration in the manner set forth in Exhibit D.


                                       10
<PAGE>
      5.3 INDEMNIFICATION. The indemnification rights and obligations of
Customer and FDMS under this Agreement are contained in Exhibit E.

                                   ARTICLE 6
                             LIMITATION OF LIABILITY

      6.1 LIMITATION ON LIABILITY.

            (a) Each of Customer's and FDMS's cumulative liability for any loss
or damage, direct or indirect, for any cause whatsoever (including, but not
limited to, those arising out of or related to this Agreement) with respect to
claims (whether third party claims, indemnity claims or otherwise) relating to
events in any one Processing Year shall not under any circumstances exceed the
greater of (i) the amount of the Processing Fees paid to FDMS by Customer
pursuant to this Agreement for Services performed during such Processing Year,
or (ii) three million five hundred thousand dollars ($3,500,000).

            (b) The monetary limits provided for in Section 6.1(a) shall not be
construed to limit the payment obligations of Customer or FDMS, as applicable,
with respect to (i) acts of gross negligence or willful misconduct by either
Customer or FDMS, (ii) breaches by either Customer or FDMS of their obligations
under Article 10 or (iii) Processing Fees, Special Fees, compensatory payments
pursuant to Section 9.4 of this Agreement, or any other fee, tax, interest or
other amount due and owing by Customer under this Agreement.

      6.2 NO SPECIAL DAMAGES. EXCEPT FOR ACTS OF GROSS NEGLIGENCE, WILLFUL
MISCONDUCT OR BREACHES OF OBLIGATIONS UNDER ARTICLE 10, IN NO EVENT SHALL FDMS
BE LIABLE UNDER ANY LEGAL THEORY FOR ANY LOST PROFITS, EXEMPLARY, PUNITIVE,
SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, WHICH ARE HEREBY
EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF WHETHER FDMS HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES.

                                   ARTICLE 7
                            DISCLAIMER OF WARRANTIES

EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT (INCLUDING ARTICLE 11), FDMS
SPECIFICALLY DISCLAIMS ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING
WARRANTIES OF MERCHANTABILITY OR NONINFRINGEMENT, ARISING OUT OF OR RELATED TO
THIS AGREEMENT, WHICH ARE HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES. THE
PARTIES AGREE THAT THIS AGREEMENT IS A SERVICE AGREEMENT AND IS NOT SUBJECT TO
THE PROVISIONS OF THE UNIFORM COMMERCIAL CODE.


                                       11
<PAGE>
                                   ARTICLE 8
                                TERM OF AGREEMENT

      8.1 TERM. Except as set forth in Section 4.1, this Agreement is effective
from the date hereof and shall extend for four (4) Processing Years (the
"Original Term"). Processing Year 1 of the Term shall commence on the first day
of July, 2002 and continue through the last day of June, 2003. For purposes of
this Agreement, a "Processing Year" means each twelve (12) month period
commencing on the first day of July and ending on the last day of June.

      8.2 RENEWAL. After the Original Term, this Agreement shall automatically
continue in effect until either party gives the other at least six (6) months
prior written notice of termination.

                                   ARTICLE 9
                                   TERMINATION

      9.1 TERMINATION BY FDMS. FDMS may terminate this Agreement without
penalty:

            (a) if Customer fails to pay any amount due under this Agreement, or
establish, fund or maintain any account as required under this Agreement, within
thirty (30) days after Customer's receipt of written notice of its failure to do
so; provided, however, that FDMS may suspend the rendering of Services or
Interchange Settlement prior to termination if necessary;

            (b) if any Insolvency Event occurs with respect to Customer;

            (c) if Customer fails to maintain or re-establish good standing as
an independent sales organization or a member services provider with VISA or
MasterCard within thirty (30) days after Customer's receipt of written notice of
its failure to do so; provided, however, that FDMS may suspend the rendering of
Services prior to termination if required by VISA or MasterCard;

            (d) if Customer fails to provide or maintain clearing arrangements
for the Merchant Accounts processed under this Agreement in accordance with all
applicable rules and regulations of VISA and MasterCard within thirty (30) days
after Customer's receipt of written notice of its failure to do so; provided,
however, that FDMS may suspend the rendering of Services prior to termination if
required by VISA or MasterCard;

            (e) if FDMS has been required by a governmental or regulatory body
or agency or by VISA and MasterCard to terminate the Services on behalf of
Customer and Customer fails to remedy such situation within thirty (30) days
after Customer's receipt of written notice; provided, however, that FDMS may
suspend the rendering of Services prior to termination if so required;


                                       12
<PAGE>
            (f) upon the termination of the membership in VISA or MasterCard of
the last remaining Clearing Bank and Customer fails to remedy such situation
within thirty (30) days after Customer's receipt of written notice; provided,
however, that FDMS may suspend the rendering of Services prior to termination if
necessary; or

            (g) if FDMS has terminated Interchange Settlement of Transactions on
behalf of Customer or the last remaining Clearing Bank pursuant to any clearing
bank arrangement and Customer fails to remedy such situation within thirty (30)
days after Customer's receipt of written notice; provided, however, that FDMS
may suspend the rendering of Services prior to termination if necessary.

The rights of FDMS to terminate under this Section 9.1 are cumulative and the
existence of the right under any provision or subsection is not exclusive of the
right under any other provision or subsection.

      9.2 TERMINATION BY CUSTOMER.

            (a) Customer may terminate this Agreement without penalty:

                  (i) if any Insolvency Event occurs with respect to FDMS;

                  (ii) upon notice to FDMS if FDMS fails to perform or observe
any of the terms, covenants or conditions of this Agreement and FDMS fails to
cure such breach within thirty (30) days following its receipt of the notice of
such breach;

                  (iii) pursuant to Section 2.5 of this Agreement;

                  (iv)  pursuant to Section 12.1 of this Agreement; or

                  (v) immediately if FDMS is unable to perform Interchange
Settlement services for more than forty eight (48) continuous hours; provided,
however, that FDMS' inability to perform Interchange Settlement services due to
any cause beyond its control shall not be considered to be an inability for
which Customer may terminate (or for which FDMS shall be responsible under) this
Agreement.


                                       13
<PAGE>
            (b) Notwithstanding anything contained herein, the parties agree
that Customer will have the right, on or before October 26, 2002, to provide
written notice to FDMS of its election to terminate this Agreement if Customer,
in good faith, is not satisfied with the Processing Fees under this Agreement
and to revert to each of the existing BHAC Service Agreement, Humboldt Agreement
and FNP Agreement. Upon Customer's election to terminate this Agreement and
revert to the BHAC Service Agreement, Humboldt Agreement and FNP Agreement,
Customer agrees to return to FDMS any sign-up bonus or other compensation
received by Customer specifically in exchange for entering into this Agreement,
including the sign-up bonus described in Section 2.6. During such period ending
October 26, 2002, Customer shall not, and shall cause its Affiliates not to,
directly or indirectly, solicit, encourage, engage or participate in any
discussions or negotiations with any other person or entity, including providing
any information, with respect to an agreement for services similar to the
Services being provided by FDMS under this Agreement, excluding discussions
related to acquisitions by Customer of Merchant Accounts.

      9.3 EFFECT OF TERMINATION. Upon termination, FDMS shall have no further
obligation to provide services to Customer and all outstanding unpaid amounts
due and owing to FDMS shall become immediately due and payable. Termination
shall not affect the following:

            (a) the obligation of Customer to pay for services rendered or any
other obligation or liability owing or which becomes owing under this Agreement
whether the obligations arise prior to or after the date of termination
including the obligations to make the payments provided in Article 4 and Section
9.4 of this Agreement;

            (b) the obligations of Customer set forth in this Agreement in
connection with any FDMS or third party software pursuant to Exhibit A; or

            (c) the obligations of each party under Sections 2.5 and 4.8,
Articles 5, 6, 7 and 10, and Exhibits C, D and E, which shall survive expiration
or termination of this Agreement for any reason; provided, however, that if FDMS
terminates this Agreement pursuant to Section 9.1(a), FDMS shall not be required
to continue to perform Services as described in Section 4.8(b)(i).

      9.4 PAYMENTS UPON TERMINATION.

            (a) If FDMS terminates this Agreement under Section 9.1 due to a
default of Customer at any time prior to the expiration of the Term, Customer
and FDMS agree that, based on economic assumptions material to each party,
Customer shall make a compensatory payment to FDMS. Such compensatory payment
shall be made by Customer upon termination by FDMS, and prior to Deconversion,
and shall equal the sum of:

                  (i) the product of (1) the Year 1 Minimum Authorizations, Year
2 Minimum Authorizations, Year 3 Minimum Authorizations, Year 4 Minimum
Authorizations or the Minimum Authorizations, as applicable, as set forth in
Section 4.4 of this Agreement, for the Processing Year in which the termination
occurs (after crediting Customer for any Authorizations


                                       14
<PAGE>
processed by FDMS in such Processing Year), multiplied by (2) ($[****]); plus

                  (ii) the sum of the present values of a payment in each full
Processing Year (other than the year of termination) which remains during the
Term of this Agreement in an amount equal to the product of (1) the Year 1
Minimum Authorizations, Year 2 Minimum Authorizations, Year 3 Minimum
Authorizations, Year 4 Minimum Authorizations and the Minimum Authorizations, as
applicable, as set forth in Section 4.4 of this Agreement, multiplied by (2)
[****] cents [****]; plus

                  (iii) the amount of Balance Sheet Expenses remaining
unamortized on the balance sheet of FDMS.

            (b) In determining the present value of the amount set forth in
(a)(ii) above, an interest rate equal to the three (3) month Treasury Bill Rate,
as quoted by The Wall Street Journal for the date on which termination occurs,
or if not available on the date of termination, as soon thereafter as the next
edition of The Wall Street Journal is published, shall be assumed and the
payments shall be assumed to be made on the first day of each Processing Year.

            (c) FDMS and Customer agree that the compensatory payment set forth
in Section 9.4(a) is a reasonable estimation, as of the date of this Agreement,
of the actual damages which FDMS would suffer if FDMS were to fail to receive
the processing business for the full Term.

                                   ARTICLE 10
                           CONFIDENTIAL NATURE OF DATA

      10.1 CUSTOMER'S PROPRIETARY INFORMATION. FDMS acknowledges the proprietary
and confidential data of Customer disclosed to FDMS, including without
limitation Customer's Merchant master files, the names and information related
to Customer's Merchant Accounts, and the names and information related to any
independent sales organization or member service providers utilized by Customer
(collectively, "Customer's Proprietary Information"). FDMS shall, and shall
cause its Affiliates to, return to Customer all or any requested portion of
Customer's Proprietary Information upon the expiration or termination of this
Agreement.

      10.2 FDMS'S PROPRIETARY INFORMATION. Customer acknowledges that all
product and system developments, enhancements, improvements and modifications
disclosed, provided or used by FDMS shall remain solely and exclusively the
property of FDMS. Customer shall not obtain any proprietary rights in any
proprietary or confidential information which has been or is disclosed to
Customer by FDMS, including without limitation, any data or information that is
a trade secret or competitively sensitive material, User Manuals, screen
displays and formats, FDMS's computer software and documentation, software
performance results, flow charts and other specifications (whether or not
electronically stored), data and data formats (collectively, "FDMS's Proprietary
Information") whether any of the materials are developed or purchased
specifically for performance

[****] Represents material which has been redacted and filed separately with the
Commission pursuant to a request for confidential treatment pursuant to Rule 406
under the Securities Act of 1933, as amended.


                                       15
<PAGE>
of this Agreement or otherwise. Customer shall, and shall cause its Affiliates
to, return to FDMS all of FDMS's Proprietary Information upon the expiration or
termination of this Agreement.

      10.3 CONFIDENTIALITY OF AGREEMENT. Except as required by law, each of FDMS
and Customer shall keep confidential and not disclose, and shall cause its
Affiliates and their respective directors, officers, employees, representatives,
agents and independent contractors to keep confidential and not disclose, any of
the terms and conditions of this Agreement to any third party without the prior
written consent of FDMS. The parties acknowledge and agree that Customer may,
upon the advice of counsel and provision of notice to FDMS, file a copy of this
Agreement with and/or provide a description of this Agreement to applicable
government authorities if this Agreement is deemed material to Customer.

      10.4 CONFIDENTIALITY. FDMS and Customer shall maintain Customer's
Proprietary Information and FDMS's Proprietary Information, respectively, in
strict confidence. Without limiting the generality of the foregoing, FDMS and
Customer each agree:

            (a) not to disclose or permit any other person or Entity access to
Customer's Proprietary Information or FDMS's Proprietary Information, as
appropriate, except that the disclosure or access shall be permitted to an
employee, officer, director, agent, representative, external or internal
auditors or independent contractor of the party requiring access to the same in
the course of his or her employment or services;

            (b) to ensure that its employees, officers, directors, agents,
representatives and independent contractors are advised of the confidential
nature of Customer's Proprietary Information and FDMS's Proprietary Information,
as appropriate, and are precluded from taking any action prohibited under this
Article 10, provided that in any event Customer and FDMS shall each be liable
for any breach of this Article 10 by their respective employees, officers,
directors, agents, representatives and independent contractors;

            (c) not to alter or remove any identification, copyright or
proprietary rights notice which indicates the ownership of any part of
Customer's Proprietary Information or FDMS's Proprietary Information, as
appropriate;

            (d) to notify the other promptly and in writing of the circumstances
surrounding any possession, use or knowledge of Customer's Proprietary
Information or FDMS's Proprietary Information, as appropriate, at any location
or by any Entity other than those authorized by this Agreement; and

            (e) not to use Customer's Proprietary Information or FDMS's
Proprietary Information, as appropriate, except for the purposes of fulfilling
its obligations under this Agreement.

      10.5 RELEASE OF INFORMATION. Despite the foregoing, Customer and FDMS
agree that


                                       16
<PAGE>
Customer's Proprietary Information may be made available to VISA, MasterCard or
to supervisory or regulatory authorities of Customer upon the written request of
any of the foregoing.

      10.6 EXCLUSIONS. Nothing in this Article 10 shall restrict either party
with respect to information or data identical or similar to that contained in
Customer's Proprietary Information or FDMS's Proprietary Information, as
appropriate, but which: (i) the receiving party can demonstrate was rightfully
possessed by it before it received the information from the disclosing party;
(ii) was in the public domain prior to the date of this Agreement or
subsequently becomes publicly available through no fault of the receiving party
or any Entity acting on its behalf; (iii) was previously received by the
receiving party from a third party or is subsequently furnished rightfully to
the receiving party by a third party (no Affiliate of FDMS or Customer shall be
considered to be a third party) not known to be under restrictions on use or
disclosure; (iv) is independently developed by such party; (v) is required to be
disclosed by law, regulation or court order, provided that the disclosing party
will exercise reasonable efforts to notify the other party prior to disclosure;
or (vi) is required to be disclosed to comply with or to enforce the terms of
this Agreement.

      10.7 REMEDY. If either party breaches this Article 10, the non-breaching
party will suffer irreparable harm and the total amount of monetary damages for
any injury to such party will be impossible to calculate and therefore an
inadequate remedy. Accordingly, the non-breaching party may (i) seek temporary
and permanent injunctive relief against the breaching party or (ii) exercise any
other rights and seek any other remedies to which the non-breaching party may be
entitled to at law, in equity and under this Agreement (including Article 6) for
any violation of this Article 10. The provisions of this Article 10 shall
survive the expiration or termination of this Agreement.

                                   ARTICLE 11
                                 REPRESENTATIONS

      11.1 FDMS'S REPRESENTATION. FDMS represents and warrants that the
execution and delivery of this Agreement and the consummation of the transaction
herein contemplated does not conflict in any material respect with or constitute
a material breach or material default under the terms and conditions of any
documents, agreements or other writings to which it is a party.

      11.2 CUSTOMER'S REPRESENTATION. Customer represents and warrants that the
execution and delivery of this Agreement and the consummation of the transaction
herein contemplated does not conflict in any material respect with or constitute
a material breach or material default under the terms and conditions of any
documents, agreements or other writings to which it is a party.

                                   ARTICLE 12
                                  MISCELLANEOUS

      12.1 ASSIGNMENT OF THIS AGREEMENT. Except as otherwise provided herein,
the rights and


                                       17
<PAGE>
obligations of each party under this Agreement are personal and this Agreement
shall not be assigned, either voluntarily or by operation of law, without the
prior written consent of the other party, which will not be unreasonably
withheld or delayed beyond thirty (30) days; provided, however, that if FDMS
fails to consent to any such proposed assignment by Customer, Customer may
terminate this Agreement without penalty and shall have the right to begin
Deconversion as described in Section 4.8 hereof. Subject to the foregoing, all
provisions contained in this Agreement shall extend to and be binding upon the
parties hereto or their respective successors and permitted assigns.

      12.2 STATE LAW. Except as provided in Exhibit D, this Agreement shall be
governed by the laws of the State of New York as to all matters including
validity, construction, effect, performance and remedies without giving effect
to the principles of choice of law thereof. With respect to any suit, action or
proceeding arising out of or relating to this Agreement, Customer agrees that
any process to be served in connection therewith shall, if delivered, sent or
mailed in accordance with Section 12.3, constitute good, proper and sufficient
service thereof.

      12.3 NOTICE. All notices which either party may be required or desire to
give to the other party shall be in writing and shall be given by personal
service, telecopy, registered mail or certified mail (or its equivalent), or
overnight courier to the other party at its respective address or telecopy
telephone number set forth below. Mailed notices and notices by overnight
courier shall be deemed to be given upon actual receipt by the party to be
notified. Notices delivered by telecopy shall be confirmed in writing by
overnight courier and shall be deemed to be given upon actual receipt by the
party to be notified.

<TABLE>
<CAPTION>
If to FDMS:                              With a copy to:
<S>                                      <C>
First Data Merchant                      First Data Merchant
 Services Corporation                    Services Corporation
265 Broadhollow Road                     12500 E. Mt. Belford Avenue, Suite M5-C
Melville, NY 11747                       Englewood, Colorado 80112
Attn: General Manager                    Attn: General Counsel
Telecopy Number:  631-577-7015           Telecopy Number:  720-332-0033

If to Customer:                          With a copy to:

iPayment Holdings, Inc.                  iPayment, Inc.
30 Burton Hills, Suite 520               9121 Oakdale Avenue, Suite 201
Nashville, TN 37215                      Chatsworth, CA 91311
Attn: Afshin Yazdian                     Attn: Joe Jorling
Telecopy Number: 615-665-8434            Telecopy Number: 818-701-2406

And a copy to:
</TABLE>


                                       18
<PAGE>
<TABLE>
<S>                                      <C>
Howard Herndon
Waller Lansden
511 Union Street, Suite 2100
Nashville, TN 37219
Telecopy Number: 615-244-6804
</TABLE>

A party may change its address or addresses set forth above by giving the other
party notice of the change in accordance with the provisions of this section.

      12.4 WAIVER. The failure of either party at any time to require
performance by the other party of any provision of this Agreement shall not
affect in any way the full right to require the performance at any subsequent
time. The waiver by either party of a breach of any provision of this Agreement
shall not be taken or held to be a waiver of the provision itself.

      12.5 RELATIONSHIP OF PARTIES. Nothing contained in this Agreement shall be
deemed to create a partnership, joint venture or similar relationship between
the parties. The parties' relationship shall be that of independent parties
contracting for services. Neither party shall hold itself out as having the
authority to bind the other except as specifically provided in connection with
Interchange Settlement. All personnel and other agents employed by either party
in connection with this Agreement are such party's or its agent's employees and
not employees or agents of the other party. Nothing contained in this Agreement
shall be deemed to convey to FDMS any interest in the business or assets of
Customer.

      12.6 THIRD PARTY BENEFICIARIES. This Agreement is entered into solely for
the benefit of FDMS, Customer and their respective Affiliates and shall not
confer any rights upon any other Entity.

      12.7 SUBCONTRACTORS. FDMS may subcontract all or any part of the Services,
but, notwithstanding any such subcontract, FDMS shall remain primarily
responsible for performance of the Services.

      12.8 FORCE MAJEURE AND RESTRICTED PERFORMANCE. If performance by FDMS or
Customer of any service or obligation under this Agreement, including conversion
or Deconversion, is prevented, restricted, delayed or interfered with by reason
of labor disputes, strikes, acts of God, floods, lightning, severe weather,
shortages of materials, rationing, utility or communication failures, failure of
MasterCard or VISA, failure or delay in receiving electronic data, earthquakes,
war, revolution, civil commotion, acts of public enemies, blockade, embargo, or
any law, order, proclamation, regulation, ordinance, demand or requirement
having legal effect of any government or any judicial authority or
representative of any such government, or any other act, omission or cause
whatsoever, whether similar or dissimilar to those referred to in this clause,
which are beyond the reasonable control of FDMS or Customer, then FDMS or
Customer, as applicable, shall be excused from the performance to the extent of
the prevention, restriction, delay or interference.


                                       19
<PAGE>
      12.9 SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable for any reason, the invalidity shall not affect the validity of
the remaining provisions of this Agreement, and the parties shall substitute for
the invalid provisions a valid provision which most closely approximates the
intent and economic effect of the invalid provision.

      12.10 AUDIT. From time to time during the Term of this Agreement, FDMS
will allow a third party, selected by FDMS, to perform an audit of the
electronic data processing environment maintained by FDMS to provide the
services contemplated under this Agreement. FDMS shall provide Customer with a
copy of the results of the audit if Customer requests a copy in writing.

      12.11 RISK OF LOSS. Customer shall be responsible for any and all risk of
loss to any tangible item (i) provided by FDMS for Customer (including without
limitation statements and embossed cards) upon the delivery of such items to the
U.S. Postal Service or such other courier as Customer may select, and (ii)
provided by Customer to FDMS until actual receipt of such items by FDMS. It is
expressly understood that the U.S. Postal Service and any courier selected by
Customer are the agents of Customer and not FDMS.

      12.12 EQUAL EMPLOYMENT OPPORTUNITY. FDMS will not discriminate against any
employee or applicant for employment because of race, color, religion, sex,
national origin, disability, age or veteran status as ordered by the Secretary
of Labor pursuant to Section 202 of Executive Order 11246, Section 503 of the
Rehabilitation Act of 1973, and Section 402 of the Vietnam Era Veterans
Readjustment Assistance Act of 1974.

      12.13 ENTIRE AGREEMENT. This Agreement, including Exhibits and the
executed Affiliate Agreements, if any, sets forth all of the promises,
agreements, conditions and understandings between the parties respecting the
subject matter hereof and supersedes all negotiations, conversations,
discussions, correspondence, memorandums and agreements between the parties
concerning the subject matter.

      12.14 AMENDMENTS. This Agreement may not be amended except by a writing
signed by authorized representatives of both parties to this Agreement.

      12.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

      12.16 TERMINATION OF SERVICE AGREEMENTS. Unless Customer makes the
election to terminate this Agreement as provided in Section 9.2(b), the BHAC
Service Agreement, the Humboldt Agreement and the Merchant Processing Services
portions of the FNP Agreement are hereby terminated as of October 27, 2002.

  [The rest of this page is intentionally left blank; signature page follows.]


                                       20
<PAGE>
      The parties to this Agreement have caused it to be executed by their duly
authorized officers as of the date set forth at the beginning of this Agreement.

FIRST DATA MERCHANT SERVICES CORPORATION

By: /s/ Anthony Lucatuorto
    ----------------------------------------------

Name:   Anthony Lucatuorto
      --------------------------------------------

Title:  SVP
       -------------------------------------------

iPAYMENT HOLDINGS, INC.

By: /s/ Joseph Jorling
    ----------------------------------------------

Name:   Joseph Jorling
      --------------------------------------------

Title:  COO
       -------------------------------------------


                                       21