EXHIBIT  10.1



                                WARRANT AGREEMENT


                                      AMONG


                            KUBRA DATA TRANSFER LTD.

                                       AND

                           PAYMENT DATA SYSTEMS, INC.





                         Dated as of September 30, 2004

<PAGE>
                                WARRANT AGREEMENT


     THIS  WARRANT AGREEMENT (this "Warrant Agreement") is made and entered into
as  of  September  30,  2004  (the  "Effective  Date") by and among Payment Data
Systems,  Inc.,  a  Nevada corporation ("Payment Data"), and Kubra Data Transfer
Ltd.,  a New York corporation ("Kubra").  Payment Data and Kubra are referred to
in  this  Warrant  Agreement  collectively  as the "Parties" and singularly as a
"Party."

                                    PREAMBLE

     Payment  Data and Kubra have entered into a Referral Agent Agreement, dated
as  of  July  30, 2004 (the "Referral Agreement").  As consideration between the
Parties  for entering into the Referral Agreement, the Parties hereby enter into
this  Warrant  Agreement,  providing,  among  other  things, that Kubra shall be
entitled  to  receive  warrants  to acquire shares ("Shares") of common stock of
Payment  Data,  $0.001 par value (the "Common Stock"), pursuant to the terms and
conditions  provided  herein  (all such warrants being referred to herein as the
"Warrants").

     This Warrant Agreement sets forth the agreement of the Parties with respect
to  the  Warrants.

     NOW,  THEREFORE,  in  consideration of the above and the mutual warranties,
representations,  covenants,  and agreements set forth herein, the Parties agree
as  follows:

                                    ARTICLE 1

WARRANTS

     1.1.     Issuance  of  Initial  Warrant.

     (a)     Initial  Warrant.  In  consideration  of  Kubra  entering  into the
Referral  Agreement,  Payment  Data  will issue to Kubra on the Effective Date a
Warrant  representing  the  right  to  acquire  250,000 Shares at a strike price
("Strike Price") of $0.24 per Share (the "Initial Warrant"), and will deliver to
Kubra  a  Warrant  Certificate  representing  such Initial Warrant.  The form of
certificate  representing  the  Initial  Warrant  (the "Warrant Certificate") is
attached  hereto  as  Exhibit  A.

     (b)    The  Initial  Warrant will be fully vested on the Effective Date and
will  be  exercisable  during  the  period  commencing on the Effective Date and
ending five  (5) years after the Effective Date; provided, however, that Payment
Data  shall  have the right to cause Kubra to purchase the Shares underlying the
Initial  Warrant  (the  "Call") on the terms and conditions specified in Section
3.3  of  this  Warrant  Agreement.



1.2.     Incentive  Warrants

     (a)     In  consideration  of  future  business  activities that Kubra will
provide  to  Payment  Data,  as provided in the Referral Agreement, Payment Data
will  also issue to Kubra, in accordance with the provisions in this Section 1.2
and  in  conjunction  with  Schedule  "A"  below, Warrants to purchase Shares of
Common  Stock  (the  "Incentive  Warrants")  and  will  deliver to Kubra Warrant
Certificates  representing  such  Incentive  Warrants according to the following
terms  and  conditions:

     (i)     If,  pursuant to the Referral Agreement, the dollar value (measured
in  U.S. Dollars) (the "Dollar Value") of the "Kubra Referred and PDS Contracted
Monthly  Gross  Credit Card Sales (Visa/MasterCard)," which shall be referred to
as  "Column 1," is equal to or greater than a Dollar Value in Column 1 (but less
than  a  Dollar  Value  in  Column  1 in a row below such amount) (the "Column 1
Target  Amount")  and  either  (A)  the "Kubra Referred Year PDS Revenue," which
column  shall  be  referred to as "Trigger One," in the same row as the Column 1
Target  Amount  is  achieved;  (B)  the  Dollar  Value of the "AVG Quarterly PDS
Revenue," which column shall be referred to as "Trigger Two," in the same row as
the  Column  1  Target  Amount  is  achieved  on average for two (2) consecutive
quarters  during  the Term of the Referral Agreement; or (C) the Dollar Value of
the  "AVG  Quarterly  Gross  CC  Sales,"  which  column  shall be referred to as
"Trigger  Three,"  in  the same row as the Column 1 Target Amount is achieved on
average  for  two  (2)  consecutive  quarters  during  the  Term of the Referral
Agreement,  then  Kubra shall earn a Warrant for Shares of Common Stock equal to
the  number of shares specified in the same row as the Column 1 Target Amount of
the  column  titled  "Warrant  Grant."

          (ii)     The  Strike  Price  for  the Shares issuable pursuant to such
Warrants is the lesser of the Strike Price in the same row as the Warrant earned
or one hundred and twenty percent (120%) of the market price of the Common Stock
on  the  date  the  Warrant  is  earned.

          (iii)     The  date of grant shall be five (5) days after the Column 1
Target  amount  is achieved and either the Trigger One amount in the same row is
achieved,  the  Trigger  Two  amount in the same row is achieved, or the Trigger
Three  amount  in  the  same  row  is  achieved  and Payment Data has issued its
financial reports via a Form 10-Q or 10-K for the corresponding quarter or year,
respectively.

          (iv)     Once  a  Warrant  is  issued  pursuant  to  a Column 1 Target
Amount,  any  successive  Warrants must be earned by achieving a Column 1 Target
Amount  equal  to  or greater than the Dollar Value in Column 1 in the row below
such  previously  achieved Column 1 Target Amount, as well as achieving either a
Trigger  One Dollar Value, a Trigger Two Dollar Value, or a Trigger Three Dollar
Amount  in  the  same  row  as  the  applicable  Column  1  Target  Amount.

          (v)     Provided  that  a Warrant has not been previously granted with
respect to a Dollar Value in Column 1 that is less than a Column 1 Target Amount
in  which  a Warrant is granted, then if any of the Trigger One, Trigger Two, or
Trigger Three Dollar Values is achieved with respect to any Column 1 amount that
is  less  than  the  Column 1 Target Amount in which a Warrant is granted, Kubra
shall be entitled to the grants of Warrants specified in the rows of such Column
1  amounts.  For  example,  if  during  the  first  month during the Term of the
Referral  Agreement, Kubra achieves a Column 1 Target Amount of $150,000,000 and
meets  the Trigger One Dollar Value associated with that Column 1 Target Amount,
then Kubra shall earn all of the Warrants available under the Warrant Agreement,
provided  that  the  Trigger  One  amounts  corresponding to all lesser Column 1
amounts  are  also  achieved.

                                  Schedule "A"

<TABLE>
<CAPTION>



<S>                        <C>              <C>           <C>             <C>      <C>
                           Trigger One      Trigger Two   Trigger Three

Kubra Referred and PDS. .  Kubra Referred   AVG           AVG
Contracted Monthly. . . .  Year             Quarterly     Quarterly       Shares
Gross Credit Card Sales .  PDS              PDS           Gross CC        Warrant  Strike
(Visa/MasterCard) . . . .  Revenue          Revenue       Sales           Grant    Price

5,000,000. . . . . . . .  $     1,500,000  $    375,000  $   15,000,000  150,000  $  0.44
10,000,000 . . . . . . .  $     3,000,000  $    750,000  $   30,000,000  150,000  $  0.63
15,000,000 . . . . . . .  $     4,500,000  $  1,125,000  $   45,000,000  150,000  $  0.88
20,000,000 . . . . . . .  $     6,000,000  $  1,500,000  $   60,000,000  150,000  $  1.12
25,000,000 . . . . . . .  $     7,500,000  $  1,875,000  $   75,000,000  125,000  $  1.36
35,000,000 . . . . . . .  $    10,500,000  $  2,625,000  $  105,000,000  125,000  $  1.59
45,000,000 . . . . . . .  $    13,500,000  $  3,375,000  $  135,000,000  100,000  $  1.89
50,000,000 . . . . . . .  $    15,000,000  $  3,750,000  $  150,000,000  100,000  $  2.18
60,000,000 . . . . . . .  $    18,000,000  $  4,500,000  $  180,000,000  100,000  $  2.89
75,000,000 . . . . . . .  $    22,500,000  $  5,625,000  $  225,000,000  100,000  $  3.60
90,000,000 . . . . . . .  $    27,000,000  $  6,750,000  $  270,000,000  100,000  $  4.31
105,000,000. . . . . . .  $    31,500,000  $  7,875,000  $  315,000,000  100,000  $  5.01
120,000,000. . . . . . .  $    36,000,000  $  9,000,000  $  360,000,000  100,000  $  5.70
130,000,000. . . . . . .  $    39,000,000  $  9,750,000  $  390,000,000  100,000  $  6.38
140,000,000. . . . . . .  $    42,000,000  $ 10,500,000  $  420,000,000  100,000  $  7.06
150,000,000. . . . . . .  $    45,000,000  $ 11,250,000  $  450,000,000  100,000  $  7.74
</TABLE>

Definitions  to  Schedule  "A":

"Kubra  Referred  and  PDS  Contracted  Monthly  Gross  Credit  Card  Sales
(Visa/MasterCard)"  shall mean the actual Visa and MasterCard transaction dollar
volume processed and settled by Payment Data within any given calendar month for
all  accounts  referred  by  Kubra to Payment Data, whether such referrals occur
prior  to  or  during  the  term  of  this  Warrant  Agreement.

"Kubra  Referred  Year  PDS Revenue" shall mean actual, reportable gross revenue
earned by Payment Data within any given calendar year from all accounts referred
by  Kubra,  whether  such  referrals  occur  prior to or during the term of this
Warrant  Agreement,  in each case determined under Generally Accepted Accounting
Principles,  consistently  applied.

"AVG Quarterly PDS Revenue" shall mean an average of the actual reportable gross
revenue earned by Payment Data from all accounts referred by Kubra, whether such
referrals  occur  prior to or during the term of this Warrant Agreement, for two
consecutive  financial  reporting  quarters  of  Payment  Data,  in  each  case
determined under Generally Accepted Accounting Principles, consistently applied.

"AVG  Quarterly  Gross  CC  Sales"  shall  mean  an  average  of two consecutive
financial  reporting  quarters of Visa and MasterCard transaction dollar volumes
processed  and  settled  by  Payment  Data  for  such  quarters for all accounts
referred  by  Kubra  to  Payment  Data, whether such referrals occur prior to or
during  the  term  of  this  Warrant  Agreement.

Kubra shall be entitled to reasonable access to the books and accounting records
of Payment Data for purposes of verifying and reviewing the determination of the
calculation  of  the  above  defined  terms.

     1.3     Execution  of  Warrant Certificates.       Warrant Certificates may
be  signed  on  behalf of Payment Data by any person authorized by Payment Data.

     1.4     Registration.      Payment  Data  shall  maintain,  or  cause to be
maintained,  a  registry setting forth the name and address of the record holder
of  the  Warrants, and absent evidence of sale or transfer reasonably acceptable
to  it, may treat the record holder of the Warrants as reflected on the registry
as  the  owner  of  the  Warrants  for  all  purposes.

     1.5     Exchanges.     At  the option of Kubra, (i) any Warrant Certificate
may  be  exchanged  when surrendered at the principal office of Payment Data for
one  or  more Warrant Certificates representing in the aggregate the Warrants to
acquire  a  like  number  and  kind  of Shares by Kubra and (ii) any certificate
representing  any  Shares  may  be  exchanged  when surrendered at the principal
office  of  Payment  Data's  transfer  agent  for  one  or  more  certificates
representing  the  same  aggregate number of Shares so surrendered for exchange.
Warrant  Certificates  and  certificates  representing Shares so surrendered for
exchange  shall  be  canceled  by  Payment  Data.

     1.6     Mutilated  or  Missing Warrant Certificates.  If any of the Warrant
Certificates  or  certificates  representing  Shares  shall  be mutilated, lost,
stolen, or destroyed, Payment Data shall issue, in exchange and substitution for
and  upon  cancellation  of such Warrant Certificate or certificate representing
Shares,  a new Warrant Certificate representing an equivalent number of Warrants
or  a  new certificate representing an equal number of Shares, respectively, but
only  upon  receipt  of  evidence of such loss, theft, or destruction reasonably
satisfactory to Payment Data or, if requested by Payment Data, upon receipt of a
duly executed indemnification agreement reasonably satisfactory to Payment Data.

     1.7     Manner  of Exercise of Warrants.  Subject to the provisions of this
Warrant  Agreement,  Kubra shall have the right to purchase from Payment Data at
the applicable Strike Price, and Payment Data shall issue and sell to Kubra, the
number  of  Shares  of  Common Stock represented by each Warrant exercised, upon
surrender  to  Payment  Data  at its principal office of the Warrant Certificate
representing  such  Warrant,  together  with  a  Form of Warrant Subscription in
substantially  the  form of Exhibit B attached hereto, completed and signed, and
upon  payment  to Payment Data of the Strike Price in lawful money of the United
States  of  America.

     1.8     Issuance  of Shares Upon Exercise.      Upon exercise of a Warrant,
Payment  Data  shall issue and cause to be delivered to Kubra, registered in the
name  of Kubra, a certificate representing the Shares issuable upon the exercise
of such Warrant.  Such certificate shall be deemed to have been issued and Kubra
shall be deemed to have become a holder of record of such Common Stock as of the
date  of  surrender  of the Warrant Certificate and payment of the Strike Price.
The  Warrants  shall  be  exercisable,  at  the  election of Kubra, either as an
entirety  or  for  part  of  the  number  of  Shares  specified  in  the Warrant
Certificate  representing  such  Warrants.  If  less  than  all  of  the  Shares
evidenced  by  a  Warrant  Certificate  are  exercised  at any time prior to the
Expiration  Date,  a  new Warrant Certificate or Certificates shall be issued by
Payment  Data,  registered  in  the  name  of  Kubra, representing the remaining
unexercised  number  of  Shares  evidenced  by  the  Warrant  Certificate  so
surrendered.  All Warrant Certificates surrendered upon the exercise of Warrants
shall  be  canceled  by  Payment  Data.

     1.9     Payment  of  Expenses  and  Taxes.     Payment  Data  shall pay all
expenses  and  taxes  imposed  by  law or any governmental agency, including any
documentary  stamp  taxes,  attributable  to  the  issuance  of  Shares upon the
exercise  of  Warrants; provided, however that Kubra shall be solely responsible
for  any  income  taxes  attributable  to  it in connection with the issuance or
exercise  of the Warrants or ownership of any Shares issued upon the exercise of
the  Warrants.

     1.10     Reservation of Shares.  Payment Data covenants and agrees that, so
long  as  any  Warrants  remain outstanding, Payment Data shall (i) at all times
have  authorized  and  reserved a number of Shares sufficient to provide for the
exercise  of  the Warrants and (ii) assure that the Shares, when issued, will be
fully  paid  and  non-assessable.

     1.11     Legend.  The  Warrants  shall  bear  such  restrictive  legends as
Payment  Data,  with the advice of counsel, shall deem reasonable to reflect the
restrictions  on  transfer of the Warrants and Shares applicable to this Warrant
Agreement.

     1.12     Expiration; Call of Incentive Warrants.     The Incentive Warrants
will  be  fully  vested  on  receipt by Kubra and will be exercisable during the
period  commencing  on  date of receipt by Kubra and ending five (5) years after
their respective issuance dates (the "Expiration Date"); provided, however, that
Payment  Data  shall  have the right to Call the Incentive Warrants on the terms
and  conditions  specified  in  Section  3.3  of  this  Warrant  Agreement.

                                    ARTICLE 2

                              ADJUSTMENT PROVISIONS

     2.1     Stock  Splits;  Combinations.  If  a stock dividend is declared and
paid  on  the  Common  Stock,  or  if the outstanding shares of Common Stock are
subdivided  into  a  greater  number of shares of Common Stock, the Strike Price
shall,  simultaneously  with  the  effectiveness  of  such  subdivision or stock
dividend,  be proportionately reduced, and conversely, if the outstanding shares
of  Common  Stock  shall  be  combined into a smaller number of shares of Common
Stock,  the  Strike  Price  shall, simultaneously with the effectiveness of such
combination,  be  proportionately  increased.

     2.2     Adjustment of Shares Issuable Upon Exercise of Warrants.  Upon each
adjustment  of the Strike Price as a result of the calculations made pursuant to
this  Article  2, each Warrant outstanding prior to the making of the adjustment
in  the Strike Price shall thereafter be treated as that number of Warrants, and
shall  evidence the right to purchase, at the adjusted Strike Price, that number
of  Shares  (calculated  to the nearest hundredths), obtained by (i) multiplying
the  number of Shares purchasable upon exercise of a Warrant prior to adjustment
by  the Strike Price in effect prior to adjustment and (ii) dividing the product
so  obtained  by  the Strike Price in effect after such adjustment of the Strike
Price.

     2.4     Notice  of  Adjustment  to Holders.     Upon the occurrence of each
adjustment  or  readjustment  of the Strike Price, Payment Data, at its expense,
shall  compute  such  adjustment  or  readjustment  in accordance with the terms
hereof.  Promptly,  and  in  no  case  more  than  twenty  (20)  days  after the
occurrence  of such adjustment or readjustment, Payment Data shall furnish Kubra
with  a  certificate  signed by Payment Data's chief financial officer, or other
authorized  officer,  setting  forth  in  reasonable detail (i) the Strike Price
after  such  adjustment  or readjustment; (ii) the method of calculation and the
facts  upon  which  such  calculation  was based; and (iii) the number of Shares
purchasable  upon  exercise  of a Warrant after such adjustment or readjustment.
If,  within  fifteen  (15)  days  after  receipt  of  such certificate, Kubra so
requests  in  writing,  Payment  Data  shall,  at  Kubra's  expense,  cause  the
computation  of  an adjustment or readjustment to be recalculated by independent
certified  public  accountants  selected  by  Payment  Data.

     2.6     Certain  Other  Actions Prohibited.       Payment Data shall not by
amendment  of  its  charter documents or through any reorganization, transfer of
assets,  consolidation,  merger, dissolution, issuance or sale of securities, or
any other voluntary action, avoid or seek to avoid the observance or performance
of  any  of  the provisions of this Warrant Agreement, but shall at all times in
good  faith  assist in the carrying out of all of the provisions of this Warrant
Agreement.

                                    ARTICLE 3

         TRANSFER OF WARRANTS; TERMINATION OF WARRANTS; CALL OF WARRANTS

     3.1     Restriction  on  Transfer.  Notwithstanding  any other provision of
this  Warrant  Agreement,  Shares  of  Common Stock held by Kubra pursuant to an
exercise  of a Warrant must be held by Kubra for the lesser of (i) two (2) years
and (ii) such shorter period as may be required by applicable securities law, in
each  case  following  such  exercise before such Shares may be pledged, loaned,
sold,  encumbered,  or  otherwise  transferred.

     3.2     Termination  of  Warrants.   Upon  the  termination of the Referral
Agreement,  this Warrant Agreement and all rights and responsibilities of either
party  hereunder  shall  terminate  immediately  (and  Kubra  will automatically
forfeit  any unearned Warrants under this Warrant Agreement); provided, however,
that  (1)  all  Warrants  earned by Kubra pursuant to this Warrant Agreement and
before the termination of the Referral Agreement may be exercised by Kubra under
this  Warrant  Agreement until the respective Expiration Dates of such Warrants;
and  (2)  if  the Referral Agreement is terminated by Payment Data, Payment Data
receives  at  least  one  new  merchant  referral  from Kubra under the Referral
Agreement  in  each  of the three months preceding such termination, and Payment
Data  terminates the Referral Agreement for a reason other than a breach of that
agreement  by  Kubra, then this Warrant Agreement shall terminate within six (6)
months  of  the  date  of  the  termination  of  the  Referral  Agreement.

     3.3     Call Provisions. Payment Data has the right to Call the exercise of
the  Warrants  upon  twenty (20) calendar days' notice and at any time after the
date  of  the  issuance of the Warrants; provided, however, that Payment Data is
not  permitted  to Call the exercise of any Warrant the Strike Price of which is
lower  than  the  average market price of the Common Stock for the three trading
days  prior  to  the  date  the  Call  is made by Payment Data.  For purposes of
Section  1.2(a)(ii)  and this Section 3.3, market price on a given date shall be
determined  by  the  closing  bid  price  of  the  Common  Stock  on  the  NASD
Over-the-Counter  Bulletin  Board,  or the exchange on which the Common Stock is
then trading, on the day preceding such date.   When a Call is made, Shares will
be  issued upon exercise of the Warrants pursuant to the terms and conditions of
this  Warrant  Agreement.  If  Kubra  does  not  exercise  the Warrants that are
subject  to  a  Call,  such  Warrants  will  be  forfeited by Kubra immediately.
Notwithstanding  the  foregoing,  Payment  Data  shall  not  be entitled to call
Warrants  which  require  payment  of  subscription  funds by Kubra of more than
$100,000  in  any  12  month  period.

     3.4  Registration  Rights Granted. Upon Payment Data's issuance to Kubra of
at  least  fifty  percent  (50%)  of  the  Warrants  issuable under this Warrant
Agreement,  Payment  Data  shall  piggyback the registration of the Common Stock
underlying  the  Warrants  issued  under  this  Warrant Agreement for resale and
distribution  under the Securities Act of 1933, as amended, and applicable state
securities  laws  to  a  later  registration  of Payment Data's $0.001 par value
common  stock  at such time as is convenient to Payment Data, in its discretion.

                                    ARTICLE 4

                         REPRESENTATIONS AND WARRANTIES

     4.1     Securities  Representations  of  Kubra.

     (a)     Kubra  acknowledges  that,  based  on  its  representations in this
Warrant  Agreement,  the  Warrants and Shares have not been registered under the
Securities  Act,  in  reliance  on  the non-public offering exemptions contained
therein,  as  well  as  under  applicable  state  securities  laws.

     (b)     Kubra  is  an Accredited Investor.  Kubra hereby represents that it
has  the  capacity  to protect its interests in connection with the transactions
contemplated  hereby.

     (c)     Kubra is acquiring the Warrants and Shares for its own account, not
as  a  nominee  or  agent, and not with the view to, or for resale in connection
with,  any  distribution thereof in violation of the Securities Act.  The Shares
and  Warrants  are  being  and will be acquired by Kubra for investment purposes
(meaning  with  a  current  intention  to  hold  for  an  indefinite  period).

     (d)     Kubra  has  been  given  full  access  to  all material information
concerning  the  condition,  proposed operations, and prospects of Payment Data.
Kubra and its advisors, if any, have had an opportunity to ask questions of, and
to  receive information from Payment Data concerning the terms and conditions of
Kubra's  investment  in  Payment  Data, and to obtain any additional information
necessary  to verify the accuracy of the information and data received by Kubra.

     (e)     Kubra  has made either alone or together with its advisors, if any,
such  independent  investigation  of  Payment  Data and related matters as Kubra
deems  to  be,  or  Kubra's  advisors,  if any, have advised to be, necessary or
advisable  in connection with the acquisition of the Warrants, and Kubra and its
advisors, if any, believe to be necessary in order to reach an informed decision
as  to  the  advisability  of  acquiring  of  the  Warrants.

                                    ARTICLE 5

              FUTHER REPRESENTATIONS AND WARRANTIES OF THE PARTIES

     5.1.  Organization. Each Party is a business entity duly organized, validly
existing, and in good standing under the laws of its state of organization. Each
Party  has all requisite corporate power and authority to enter into and perform
this  Warrant  Agreement and to consummate the transactions contemplated hereby.
Each  Party is duly qualified as a foreign corporation to do business, and is in
good  standing,  in  each  jurisdiction in which the character of its properties
owned  or  leased  or  the  nature  of  its  activities makes such qualification
necessary, except where the failure to be so qualified would not have a material
adverse  effect  on  this  Warrant  Agreement  or  the  other  Party.

     5.2.  Authority.  Each  Party  has  full  power  and  authority to execute,
deliver,  and  perform this Warrant Agreement and to consummate the transactions
contemplated  hereby.  The execution, delivery, and performance by each Party of
this  Warrant  Agreement  and  the consummation of the transactions contemplated
hereby  have  been duly authorized and approved by all necessary actions by such
Party,  and no other proceedings other than actions previously taken on the part
of  the  Parties  is  necessary  to  authorize  this  Warrant  Agreement and the
consummation of the transactions contemplated hereby. This Warrant Agreement has
been  duly  authorized,  executed,  and  delivered  by  each  of the Parties and
constitutes the legal, valid, and binding obligations of the Parties enforceable
in  accordance  with  its  terms,  except  as  enforceability  may be limited by
applicable  bankruptcy,  insolvency, reorganization, moratorium, or similar laws
affecting  the  enforcement  of creditors' rights generally and by the effect of
general principles of equity (regardless of whether enforcement is considered in
a  proceeding  in  equity  or  at  law).

                                    ARTICLE 6

                                  MISCELLANEOUS

     6.1     Certain  Definitions.

     (a)     Except  as  otherwise  provided  herein,  the capitalized terms set
forth  below  shall  have  the  following  meanings:

     "Accredited  Investor"  has  the  same  meaning  as in Section 501(a)(3) of
Regulation  D  promulgated  under  the  Securities  Act.

     "Securities  Act" means the Securities Act of 1933, as amended from time to
time,  or  any  successor  statute.

     "Person"  means  and  includes  natural  persons,  corporations,  limited
partnerships,  general  partnerships,  joint  stock  companies,  joint ventures,
associations,  companies,  trusts, banks, trust companies, land trusts, business
trusts,  and other organizations, whether or not legal entities, and governments
and  agencies  and  political  subdivisions  thereof.

     (b)     Unless  the  context  of  this  Warrant  Agreement clearly requires
otherwise,  references  to  the  plural  include  the  singular, to the singular
include  the plural, and to the part include the whole.  The term "including" is
not limiting and the term "or" has the inclusive meaning represented by the term
"and/or."  The  words "hereof," "herein," "hereunder," and similar terms in this
Warrant  Agreement  refer  to  this  Warrant Agreement as a whole and not to any
particular  provision  of  this  Warrant  Agreement.  References  to "Articles,"
"Sections,"  "Subsections,"  "Exhibits,"  and  "Schedules"  are  to  Articles,
Sections,  Subsections,  Exhibits,  and Schedules, respectively, of this Warrant
Agreement,  unless  otherwise  specifically  provided.

     6.2.     Survival  of  Representations  and  Warranties.  Unless  otherwise
specified  in  this Warrant Agreement, the representations and warranties of the
Parties  contained herein shall survive the Effective Date for a period expiring
at  the  close  of  business  on  the  third  anniversary of the Effective Date.

     6.3.     Reliance by Payment Data.  Notwithstanding the right of each Party
to  investigate  the  business and company assets and financial condition of the
other  Party,  and  notwithstanding  any knowledge determined or determinable by
such  Party  as  a  result of such investigation, each Party has the unqualified
right  to  rely  upon,  and  has  relied  upon,  each of the representations and
warranties  made  by  the  other  Party  in  this  Warrant  Agreement.

     6.4.  Notice.  All  notices,  consents, or other communications required or
permitted to be given under this Warrant Agreement shall be in writing and shall
be  deemed  to  have  been  duly given (i) when delivered personally; (ii) three
Business  Days,  with  a  "Business  Day" being any day other than a Saturday, a
Sunday,  or  a U.S. federal holiday, after being mailed by first class certified
mail, return receipt requested, postage prepaid; or (iii) one Business Day after
being  sent  by  a  reputable  overnight  delivery  service, postage or delivery
charges  prepaid,  to  the  other Party at its address stated below. Notices may
also  be  given  by  facsimile and shall be effective on the date transmitted if
confirmed  within  24  hours  thereafter by a signed original sent in the manner
provided  in  the  preceding  sentence.  Notices  shall  be directed as follows:

If  to  Kubra:

     5050  Tomken  Road
     Mississauga,  Ontario
     L4W  5B1
     Facsimile:  (905)  624-2886
     Attn:  Rick  Watkin,  President  &  CEO

If  to  Payment  Data:

     12500  San  Pedro  Avenue,  Suite  120
     San  Antonio,  Texas  78216
     Facsimile:  (210)  249-4130
     Attn:  Louis  Hoch

Any Party may change its address for notice and the address to which copies must
be sent by giving notice of the new addresses to the other Parties in accordance
with  this  Section 6.4, except that any such change of address notice shall not
be  effective  unless  and  until  received.

     6.5.  Expenses.  Except  as expressly set forth herein, each of the Parties
will  bear  its  own  costs  and  expenses  (including  legal fees and expenses)
incurred  in  connection  with  this  Warrant  Agreement  and  the  transactions
contemplated  hereby.

     6.6.  Applicable  Law.  This  Warrant  Agreement  shall  be governed by and
construed in accordance with the law of the State of Texas without giving effect
to  any  choice  or  conflict  of  law  provision  or rule. Venue will be in San
Antonio,  Texas  for  all  purposes.

     6.7.  Headings.  The article and section headings contained in this Warrant
Agreement  are inserted for convenience only and shall not affect in any way the
meaning  or  interpretation  of  this  Warrant  Agreement.

     6.8.  Successors  and Assigns. This Warrant Agreement shall be binding upon
and  inure  to  the  benefit  of  the  Parties named herein and their respective
successors.  No  Party  may  assign this Warrant Agreement or any of its rights,
interests,  or  obligations  hereunder without the prior written approval of the
other  Party.  Any  such  attempted assignment will be void. Notwithstanding the
foregoing,  Kubra  may assign its rights and obligations hereunder in connection
with a sale of all or substantially all of its assets to a third party purchaser
in  circumstances in which the Referral Agreement has also been assigned to such
purchaser.

     6.9.  Amendments  and  Waivers.  No amendment or waiver of any provision of
this  Warrant  Agreement  shall be valid unless the same shall be in writing and
signed  by  both  Parties.  No  waiver  by  any  party  of  any  default,
misrepresentation,  or  breach  of  a  warranty or a covenant hereunder, whether
intentional  or  not,  shall  be  deemed  to  extend  to any prior or subsequent
default,  misrepresentation,  or breach of a warranty or a covenant hereunder or
affect  in  any way any rights arising by virtue of any prior or subsequent such
occurrence.

     6.10.  Parties  in  Interest.  Nothing  in  this Warrant Agreement, whether
express  or  implied,  is  intended to confer any rights or remedies under or by
reason  of  this Warrant Agreement on any persons other than the Parties, nor is
anything  in  this  Warrant  Agreement  intended  to  relieve  or  discharge the
obligation  or  liability  of  any  third  persons  to any Party to this Warrant
Agreement, nor shall any provision give any third party any right of subrogation
over  or  action  against  any  Party  to  this  Warrant  Agreement.

     6.11.  Interpretation.  The  Parties  have  participated  jointly  in  the
negotiation and drafting of this Warrant Agreement. In the event an ambiguity or
question  of  intent  or  interpretation arises, this Warrant Agreement shall be
construed  as  if drafted jointly by the Parties and no presumption or burden of
proof  shall arise favoring or disfavoring any Party by virtue of the authorship
of  any  of  the  provisions  of  this  Warrant  Agreement. Any reference to any
federal,  state,  local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise.  The  Parties intend that each representation, warranty, and covenant
contained  herein shall have independent significance. If any Party has breached
any  representation,  warranty, or covenant contained herein in any respect, the
fact that there exists another representation, warranty, or covenant relating to
the same subject matter (regardless of the relative levels of specificity) which
the  Party has not breached shall not detract from or mitigate the fact that the
Party  is  in  breach  of  the  first  representation,  warranty,  or  covenant.

     6.12. Severability. Any term or provision of this Warrant Agreement that is
invalid  or  unenforceable in any situation in any jurisdiction shall not affect
the  validity  or enforceability of the remaining terms and provisions hereof or
the  validity  or enforceability of the offending term or provision in any other
situation  or  in  any  other  jurisdiction.

     6.13.  Counterparts/Facsimile  Execution.  This  Warrant  Agreement  may be
executed  in one or more counterparts, each of which shall be considered one and
the  same  agreement,  and  shall become effective when one or more counterparts
have been signed by each of the Parties to this Warrant Agreement. Any signature
of  a  Party  in  this Warrant Agreement that is by facsimile shall be deemed an
original  signature.

     6.14.  Incorporation  of  Exhibits and Schedules The Schedules and Exhibits
identified  in  this  Warrant Agreement are incorporated herein by reference and
made  a  part  hereof
..
     6.15.  Entire  Agreement.  This  Warrant Agreement and the other documents,
agreements,  and instruments executed and delivered pursuant to or in connection
with  this Warrant Agreement or referred to herein, contain the entire agreement
among  the  parties  hereto with respect to the transactions contemplated hereby
and  superse  des all prior arrangements or understandings with respect thereto.

     6.16.  Time  is  of the Essence. With respect to all time periods and dates
set  forth  in  this  Warrant  Agreement,  time  is  of  the  essence.


                           [Signature Page to Follow]


















     IN  WITNESS WHEREOF, the Parties have executed this Warrant Agreement as of
the  day  and  year  first  above  written.

PAYMENT  DATA  SYSTEMS,  INC.,
a  Nevada  corporation

By:     /s/  Louis  Hoch

Name:     Louis  Hoch

Title:     President  &  COO


KUBRA  DATA  TRANSFER  LTD.,
a  New  York  corporation

By:     /s/  Rick  Watkin

Name:     Rick  Watkin

Title:     CEO  &  President





<PAGE>
                                    Exhibit A
                           Form of Warrant Certificate

THE  WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE AND THE SHARES PURCHASABLE
UPON  EXERCISE OF THE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF  1933,  AS  AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE  WITH  THE ACT, THE RULES AND REGULATIONS PROMULGATED THEREUNDER, AND
ANY  APPLICABLE  STATE  SECURITIES  LAWS.

THE  WARRANTS  REPRESENTED  BY  THIS  CERTIFICATE ARE ISSUED PURSUANT TO AND ARE
SUBJECT  TO  A  WARRANT  AGREEMENT  THAT FIXES THE RIGHTS AND OBLIGATIONS OF THE
COMPANY  AND THE HOLDER OF THESE WARRANTS AND PLACES CERTAIN RESTRICTIONS ON THE
TRANSFERABILITY  OF THE WARRANTS.  A COPY OF THE WARRANT AGREEMENT IS ON FILE AT
THE  COMPANY'S  PRINCIPAL  OFFICE.

ARTICLE  1     COMMON  STOCK  WARRANT  CERTIFICATE

VOID  AFTER  _________________          For  the  Purchase  of __________ Shares
                              of  Common  Stock

Payment  Data  Systems,  Inc.,  a  Nevada  corporation  (the  "Company"), hereby
certifies  that,  for  value  received,  Kubra  Data  Transfer  Ltd., a New York
corporation (the "Holder"), is the registered holder of ________________________
(___________)  Warrants  (the  "Warrants")  to  purchase _______________________
(______)  shares  (the  "Shares")  of  the  $0.001 par value common stock of the
Company ("Common Stock").  Each Warrant entitles the Holder to purchase from the
Company  that  number  of  fully  paid and non-assessable Shares of Common Stock
specified herein at an initial strike price of $_____________ per Share ("Strike
Price"), subject to adjustment of such number of Shares and such Strike Price as
provided  in  the  Warrant  Agreement by and between the Company and the Holder.

The  Holder's right to purchase Shares hereunder shall be exercised by surrender
to  the  Company  of this Warrant Certificate, together with an executed Form of
Warrant Subscription (attached hereto) and payment of the aggregate Strike Price
of  the  Shares exercised that underlie the Warrants, at the principal executive
office of the Company, upon the terms and subject to the conditions set forth in
this  Warrant  Certificate  and  in  the  Warrant  Agreement referred to herein.

The  Warrants  represented  by  this  Warrant  Certificate  are  part  of a duly
authorized issue of warrants to purchase (subject to the satisfaction of certain
conditions  as  set  forth  in  the  Warrant  Agreement)  up  to an aggregate of
____________________  (__________)  shares  of Common Stock and have been issued
pursuant  to  the  Warrant  Agreement.  The Warrant Agreement is incorporated in
this  Warrant  Certificate  by  this  reference  and  must  be referred to for a
description of the rights, obligations, and duties of the Company and the Holder
of  the  Warrants  issued  pursuant  to  the  Warrant  Agreement.

If,  upon  any exercise of Warrants represented by this Warrant Certificate, the
number  of  Shares exercised is less than the total number of Shares represented
by  this  Warrant Certificate, there shall be issued to the Holder a new Warrant
Certificate  representing  the  number  of  Shares  not  exercised.

This Warrant Certificate, when surrendered to the Company in accordance with the
terms  of the Warrant Agreement, may be exchanged without payment of any service
charge  for  another Warrant Certificate or Warrant Certificates representing in
the  aggregate  a  like  number  of  Warrants.

IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be signed
by  the  person  named  below  thereunto  duly  authorized.

DATED:  ____________  ___,  _________

Payment  Data  Systems,  Inc.,
a  Nevada  corporation

By:     ____________________________

Name:     ____________________________

Title:     ____________________________

<PAGE>
                                    EXHIBIT B
                   ARTICLE 2     FORM OF WARRANT SUBSCRIPTION
                  (To be signed only upon exercise of Warrant)

TO:     Payment  Data  Systems,  Inc.

The  undersigned, the holder of the Warrants represented by the attached Warrant
Certificate  (the  "Holder"), hereby irrevocably elects to exercise the purchase
right  represented  by  such  Warrants  for,  and  to  purchase  thereunder,
____________*  shares  of  the  $0.001  par value common stock (the "Shares") of
Payment  Data  Systems,  Inc.  (the  "Company")  and  herewith makes payment, as
provided  in  the  Warrant  Agreement  and  the  Warrant  Certificate,  of  US
$______________  therefor.  The  Holder  hereby  requests that the Company issue
____________  Shares  and  requests  that  the certificate(s) for such Shares be
issued  in  the  name  of,  and  delivered  to,  Kubra  Data  Transfer  Ltd.

FROM:  Kubra  Data  Transfer  Ltd.

By:     ______________________________

Name:  ______________________________

Title:     ______________________________

Date:          ______________________________

(Signature  must  conform  in all respects to name of Holder as specified on the
face  of  the  Warrant  Certificate)

*     Insert  here  the  number  of Shares called for on the face of the Warrant
Certificate.  (Or,  in the case of a partial exercise, the portion thereof as to
which  the  Warrants  are  being  exercised,  in either case, without making any
adjustment  for additional Shares that, pursuant to the adjustment provisions of
the  Warrant  Agreement,  may  be  deliverable  upon  exercise.)