IPAYMENT, INC. (IPMT) IPO

 generate less 
than $250,000 of charge volume per year and have an average transaction value 
of approximately $80. These merchants have traditionally been underserved by 
larger payment processors due to the difficulty in identifying, servicing and 
managing the risks associated with these merchants. As a result, these merchants 
have historically paid higher transaction fees than larger merchants. 

Our payment processing services enable merchants to process both traditional 
card-present, or “swipe,” transactions, as well as card-not-present 
transactions. A card-not-present transaction occurs whenever a customer does not 
physically present a payment card at the point-of-sale and may occur over the 
Internet or by mail, fax or telephone. Our processing services include 
evaluation and acceptance of card numbers, detection of fraudulent transactions, 
receipt and settlement of funds and service and support. By outsourcing some of 
these services to third parties, including the evaluation and acceptance of card 
numbers and receipt and settlement of funds, we maintain an efficient operating 
structure, which allows us to easily expand our operations without significantly 
increasing our fixed costs. We derive the majority of our revenues from fee 
income related to transaction processing, which is primarily comprised of a 
percentage of the dollar amount of each transaction we process, as well as a 
flat fee per transaction. In the event we have outsourced any of the services 
provided in the transaction, we remit a portion of the fee income to the third 
parties that have provided these services. 

We believe our experience and knowledge in providing payment processing services 
to small merchants gives us the ability to effectively identify, evaluate and 
manage the payment processing needs and risks that are unique to small 
businesses. 

We market and sell our services primarily through our relationships with over 
500 independent sales organizations, or ISOs, which act as a non-employee, 
external sales force in communities throughout the United States. By providing 
the same high level of service and support to our ISOs as we do to our merchant 
customers, we maintain our access to an experienced sales force of approximately 
2,000 sales professionals who will market our services, with minimal direct 
investment in sales infrastructure and management. After an ISO refers a 
merchant to us and we execute a processing agreement with that merchant, we pay 
the referring ISO a percentage of the revenues generated by that merchant. 
Although our relationships with ISOs are mutually non-exclusive, we believe that 
our understanding of the unique payment processing needs of small merchants 
enables us to develop compelling incentives for ISOs to continue to refer newly 
identified merchants to us. We also maintain an open dialogue with our ISOs, 
allowing us to quickly address their concerns and any problems facing the 
merchants they refer to us. 

The Nilson Report, a publication specializing in consumer payment systems 
worldwide, listed us in its 2001 ranking of the top bank card acquirers, or 
owners of merchant card processing contracts, as one of the fastest growing 
providers of card-based payment processing services in the United States. In the 
last twelve months, we have continued to grow as our merchant processing volume 
increased by 228.3% from approximately $459 million for the nine months ended 
September 30, 2001 to approximately $1,507 million for the nine months ended 
September 30, 2002. During the same period, our revenues increased by 184.6% 
from $23.6 million for the nine months ended September 30, 2001 to $67.3 million 
for the nine months ended September 30, 2002. This increase was primarily 
attributable to our acquisitions since January 2001 of six businesses and four 
portfolios of merchant accounts, which resulted in an aggregate increase in 
revenues of $36.3 million, representing 83.8% of our total growth in revenues 
over the prior period. As we have grown, our net loss decreased by 29.4% from 
$1.7 million for the nine months ended September 30, 2001 to $1.2 million for 
the nine months ended September 30, 2002. 

Our Market Opportunity 

According to The Nilson Report, total expenditures of transactions using card-
based payment systems by U.S. consumers grew from $0.5 trillion in 1991, or 19% 
of all consumer payments, to $1.8 trillion in 2001, or 32% of total payments, 
and is expected to grow to $4.2 trillion by 2011, or 48% of total payments, 
which would represent a compound annual growth rate of 9% from 2001 levels. We 
believe that these increases are due to the benefits of card-based payment 
systems to both merchants and consumers. By accepting card-based payments, 
merchants can access a broader universe of consumers, enjoy faster settlement 
times and reduce transaction errors. By using credit or debit cards, consumers 
are able to make purchases more conveniently, whether in person, over the 
Internet, or by mail, fax or telephone, while gaining the benefit of loyalty 
programs, such as frequent flier miles or cash back, which are increasingly 
being offered by credit or debit card issuers. Consumers are also beginning to 
use card-based and other electronic payment methods for purchases at an earlier 
age. Given these advantages of card-based payment systems to both merchants and 
consumers, favorable demographic trends and the resulting proliferation of 
credit and debit card usage, we believe businesses will increasingly seek to 
accept card-based payment systems in order to remain competitive. 

We expect the small merchants we target to increasingly accept and benefit from 
the increased usage of card-based payment systems. The U.S. Census Bureau 
estimates that 20 million small businesses in the United States, defined as 
those with on average less than $1.0 million in annual sales, generate an 
aggregate of $1.7 trillion in annual sales. Many of these small businesses are 
seeking, and we expect many new small businesses to seek, to provide customers 
with the ability to pay for merchandise and services using credit or debit 
cards, including those in industries that have historically accepted cash and 
checks as the only forms of payment. For example, the prevalence of consumers 
making purchases on the Internet incentivizes small businesses to have an on-
line presence and, we believe, increases their need to accept credit and debit 
cards as payment. 

Our Competitive Position 

The payment processing industry is highly competitive. Many of our competitors 
have substantially greater capital resources than we have and operate as 
subsidiaries of financial or bank holding companies, which may allow them to 
integrate their services to a greater extent than we can. However, we believe 
our competitive strengths include the following: 

   
   •   Strong Position and Substantial Experience in Our Target Market. As of 
September 30, 2002, we were providing card-based payment processing to 
approximately 50,000 active small merchants. We believe that while we have a 
competitive advantage over larger service providers because of our understanding 
of the unique payment processing needs and risks of small merchants, we also 
have a competitive advantage over service providers of a similar or smaller size 
that may lack our experience and resources.  
   
 
   •   Large, Experienced, Efficient Sales Force. Our relationships with over 
500 ISOs provide us with an experienced sales force of over 2,000 individuals 
who market our services in local communities throughout the United States, with 
minimum investment in sales infrastructure and management on our part. We 
continually strive to strengthen these relationships by delivering superior 
service and support to the ISOs that refer merchants to us.  
 
    
   •   Scalable, Efficient Operating Structure. Our scalable, efficient 
operating structure allows us to easily expand our operations without 
significantly increasing our fixed costs. We conduct our customer service and 
risk management operations in-house, where we believe we can add the most value 
due to our management’s experience and expertise in these areas. We consider 
customer service and risk management highly important to our operations and 
overall success. We outsource our remaining processing services to third 
parties, including the evaluation and acceptance of card numbers and receipt and 
settlement of funds. By outsourcing these non-core services, we believe we are 
able to maintain a highly efficient operating structure.  
     
   •   Proven Acquisition and Integration Strategy. We have significant 
experience acquiring providers of payment processing services, as well as 
portfolios of merchant accounts, having acquired six providers of payment 
processing services and four portfolios of merchant accounts since January 2001. 
We have enhanced revenues and improved operating efficiencies of our acquired 
entities by improving the services, support and benefits we offer to the ISOs 
that serve the entities and merchant accounts we acquire. In addition, we have 
increased operating efficiencies of many of the businesses we have acquired by 
conducting profitability analyses of acquired merchant accounts and reducing 
processing fees and overhead.  
    
   •   Comprehensive Underwriting and Risk Management System. Through our 
experience assessing risks associated with providing payment processing services 
to small merchants, we have developed business procedures and systems that 
provide effective risk management and fraud prevention solutions.  

Our Strategy 

Our objective is to take advantage of the proliferation of small merchants and 
their increasing acceptance of card-based payment systems. We plan to build on 
our existing competitive strengths and further enhance our position as a 
provider of card-based payment processing services to small merchants. The 
principal elements of our strategy include the following: 

   
   •   Expand our portfolio of small merchants who use our processing services;  
   
   •   Enhance our relationships with those ISOs who currently refer small 
merchants to us and establish relationships with new ISOs;  
   
   •   Maintain a stable and recurring revenue base; and  
   
   •   Continue to pursue strategic acquisitions of other payment processing 
businesses, as well as individual portfolios of merchant accounts.  
 
Our History 

Our subsidiary, iPayment Technologies, Inc., was formed in 1992 as a California 
corporation. In July 2000, iPayment Technologies purchased assets from two 
former affiliates in exchange for the assumption of debt, cash, a note and the 
issuance of shares of common stock of iPayment Technologies. In December 2000, 
iPayment Technologies implemented a restructuring plan, which resulted in a 
reduction in overhead costs and personnel. In February 2001, Gregory Daily 
joined iPayment Technologies as its Chief Executive Officer and Chairman of the 
Board. 

In February 2001, we were formed by the majority stockholders of iPayment 
Technologies under the name iPayment Holdings, Inc. as a holding company for 
iPayment Technologies and other card processing businesses. We then appointed 
Gregory Daily as our Chief Executive Officer and Chairman of the Board. In April 
2001, we acquired a 94.63% interest in iPayment Technologies, and in July 2002, 
we acquired the remaining outstanding shares of iPayment Technologies, which 
then became our wholly owned subsidiary, in each case by issuing our shares to 
iPayment Technologies stockholders in exchange for iPayment Technologies shares. 

In August 2002, we were reincorporated in Delaware under the name iPayment, Inc. 

Our principal executive offices are located at 40 Burton Hills Boulevard, Suite 
415, Nashville, Tennessee 37215. Our telephone number at that address is 
(615) 665-1858.