| a.   | The Base Salary as set forth in Schedule 4(a)(i) of Schedule 1 to the Agreement is hereby amended to be $235,000 per annum in year 2012. |
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| b.   | The Bonus Compensation as set forth in Section 4(b)(ii) shall be replaced in its entirety with, “The Executive shall receive an additional bonus of $216,000.00, payable as of November 1st of each year during the Term and auto renewals of this Agreement, with the exception of  the year 2012 whereby the additional bonus compensation will be $54,000 and paid on November 1st of 2012.  The bonus may be paid, at the sole discretion of the Company, either in cash or in shares of common stock of the Company, with the exception of year 2012 whereby the additional bonus compensation will be paid in cash.  If the Company pays the bonus in the form of shares of common stock, the number of shares to be issued shall be based upon the closing price of the Company’s common stock as of October 15th (or the last trading day prior to October15th) of the year the bonus is due to be paid.” |
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| Payment Data Systems, Inc.                                                                                                                                                          |   | Executive             |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|
|                                                                                                                                                                                |   |                  |
|                                                                                                                                                                                |   |                  |
| By: /s/ Michael R. Long                           |   | By: /s/ Louis A. Hoch |
| Name: Michael R. Long                                                                                                                                                               |   | Name: Louis A. Hoch   |
| Title: CEO & CFO                                                                                                                                                                |   |                  |

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