UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT
     PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934


Date  of  Report  (Date  of  earliest  event  reported)     November  1,  2006

                           PAYMENT  DATA  SYSTEMS,  INC.
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             (Exact name of registrant as specified in its charter)

           NEVADA                     000-30152                   98-0190072
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(State  or  other  jurisdiction     (Commission                (IRS  Employer
     of  incorporation)             File  Number)           Identification  No.)


   12500  SAN  PEDRO,  SUITE  120,  SAN  ANTONIO,  TEXAS          78216
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       (Address of principal executive offices)                 (Zip Code)


Registrant's  telephone  number,  including  area  code        (210)  249-4100

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          (Former name or former address, if changed since last report.)

Check  the  appropriate  box  below  if  the  Form  8-K  filing  is  intended to
simultaneously  satisfy the filing obligation of the registrant under any of the
following  provisions  (see  General  Instruction  A.2.  below):

[   ]  Written  communications pursuant to Rule 425 under the Securities Act (17
       CFR  230.425)

[   ]  Soliciting  material  pursuant  to Rule 14a-12 under the Exchange Act (17
       CFR  240.14a-12)

[   ]  Pre-commencement  communications  pursuant  to  Rule  14d-2(b)  under the
       Exchange  Act  (17  CFR  240.14d-2(b))

[   ]  Pre-commencement  communications  pursuant  to  Rule  13e-4(c)  under the
       Exchange  Act  (17  CFR  240.13e-4(c))

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Item  8.01  Other  Events.

On  November  1,  2006,  the  credit card association bank sponsor we utilize to
provide  merchant  processing  services  to Online Supplier, one of our merchant
processing  customers,  notified us that they would cease processing credit card
transactions  for  Online  Supplier. This action will not have any affect on our
agreement with the sponsoring bank or our ability to provide merchant processing
services  to  our  other  customers.  We  believe that we will be able to assist
Online Supplier move its credit card volume to another bank sponsor. However, if
we  are  unsuccessful  in procuring a bank to accept their processing volume, we
could  lose  Online Supplier as a merchant processing customer and their related
processing revenue. During the quarter and nine months ended September 30, 2006,
Online Supplier generated revenues of $411,048 and $482,078, respectively, which
represented  46%  and  27% of our total revenues for the quarter and nine months
ended  September  30,  2006,  respectively.  We  did  not  have  any credit card
processing  revenues  from  Online  Supplier  in  2005.

This  report  contains  forward-looking  statements  that  involve  risks  and
uncertainties. We generally use words such as "believe," "may," "could," "will,"
"intend,"  "expect,"  "anticipate,"  "plan," and similar expressions to identify
forward-looking  statements.  You  should  not  place  undue  reliance  on these
forward-looking  statements.  Our  actual  results  could differ materially from
those  anticipated  in the forward-looking statements for many reasons including
our  ability  to  implement  our  business plan, our ability to raise additional
funds and manage our substantial debts, consumer acceptance of our products, our
ability  to  broaden our customer base, and other risks described in our reports
filed with the Securities and Exchange Commission from time to time. Although we
believe  the  expectations  reflected  in  the  forward-looking  statements  are
reasonable,  they  relate  only to events as of the date on which the statements
are  made,  and  our  future  results,  levels  of  activity,  performance  or
achievements  may not meet these expectations. We do not intend to update any of
the  forward-looking statements after the date of this document to conform these
statements  to  actual  results  or  to  changes  in our expectations, except as
required  by  law.



                                    SIGNATURE

Pursuant  to  the  requirements  of  the  Securities  Exchange  Act of 1934, the
registrant  has  duly  caused  this  report  to  be  signed on its behalf by the
undersigned  hereunto  duly  authorized.

                                                     Payment Data Systems, Inc.
                                                              (Registrant)
Date   November  7,  2006

                                                     /s/  Michael R.  Long
                                                     ---------------------
                                                           (Signature)
                                                     Michael R.  Long
                                                     Chief Executive Officer and
                                                     Chief  Financial  Officer