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Study: Credit card users don't understand payment terms

Aug 30, 2013 Sean Albert

During the last few years, the use of alternative credit solutions has increased significantly, as more consumers and retail vendors embrace ACH cards and other products. A variety of reasons have contributed to the development, including widespread frustration with traditional credit card companies on the part of consumers.

In fact, new data suggests that alternative payment options may be becoming more popular because they are simple to use and understand, unlike many credit cards. A recent J.D. Power and Associates study found that just 47 percent of credit card users fully understand the terms of policies for their products, showing that the many consumers are in the dark about the contractual agreements they are required to meet.

Even credit users who indicated they had a proficient understanding of credit card terms stated that they are still unfamiliar with some aspects. A sizable 73 percent of these respondents noted that interest rate policies are unclear, proving that even the most savvy of consumers have difficulty deciphering credit card stipulations. Also, 31 percent don't know how late payment fees work.

Alternative solution growth
In the wake of the Great Recession, more Americans started to take a proactive approach to financial management. Instead of relying on traditional payment and transaction solutions, many citizens started to explore alternate services that offered them more flexibility and a cost-efficient model.

One such payment platform that has seen significant expansion in the last several years is ACH. According to The Electronic Payments Association (NACHA), the use of ACH payments has been steadily increasing in recent years. During the first quarter of 2013, ACH transactions grew 2.9 percent compared to the first quarter in 2012. That accounted for more than 4.3 billion transactions during the first quarter of 2013, worth $9.6 trillion.

For both business leaders and consumers, the technology has proven to be a cost-effective one. PaySimple reported that a standard paper check costs $1.22 to process, while an ACH transaction costs just $0.55.

Setting up ACH payment portals is relatively simple as well, meaning that enterprises can start taking advantage of the cost savings in no time at all. The source noted that the electronic system that ACH operates on is safe, which allows businesses to use the platform for important payment processing such as direct deposit into employee accounts. With so many benefits that are easy to understand, it's no surprise that ACH payments are becoming more popular among consumers frustrated with traditional credit processing.