Monday, August 9, 2021
According to several recent reports, the widely documented bottlenecks in chip supplies have become so critical that upward of 1 billion credit and debit cards are at risk of not being issued between now and 2023. And that, by extension, could put a serious crimp in the gross domestic products of nations large and small.
"A lack of payment cards will directly translate into less purchases, which will ultimately have a detrimental impact on GDP," said Phil Sealy, digital security research director at London-based ABI Research.
Chip cards are integral to the EMV security standard for credit and debit cards. As of year-end 2020, there were 10.8 billion EMV cards in circulation worldwide, according to EMVCo. The highest adoption rates (90 percent or more of cards in circulation) were recorded in Africa and the Middle East, as well as Canada, Latin America and the Caribbean. In the United States, there were 1.16 billion EMV cards issued, based on data provided by American Express, Discover, JCB, Mastercard and Visa, or just under 72 percent of total cards in circulation.
Chips also are integral to contactless payments. Contactless payments are facilitated by specially encoded EMV chips that support near field communication with card-acceptance devices. While contactless cards are ubiquitous in many parts of the world, they have been slow to take off in the United States, where just 3 percent of all credit and debit cards in circulation were contactless enabled in 2018.
The COVID-19 pandemic, which brought with it concerns about the health hazards of coming into contact with public-use devices, has increased reliance on contactless payments by most accounts. Mastercard, for example, reported that 41 percent of in-person payments, globally, were made with contactless cards in the third quarter of 2020, up from 30 percent one year earlier.
The chip shortage traces its origins to the pandemic. As hundreds of millions of people were forced to stay home, bereft of the trappings of work and play life, demand for laptops and other consumer electronics skyrocketed. Chip manufacturers had trouble keeping up, and soon supply chain shortages ensued, affecting everything from automobiles to smartphones, and now it seems, credit and debit cards.
The impact has "remained largely invisible through the first half of 2021," ABI related in an Aug. 5, 2021, statement touting a research report aptly titled The Impacts of Chip-Set Shortage on the Payment Cards Market. But the impact has been more visible in the second half of 2021. As lead times between order and delivery continue to lengthen, the situation is shaping up to produce a "critical chip shortage" in 2022, ABI reported.
The Smart Payment Association issued a similar warning in June. "The widely reported bottlenecks in chip supply have become so critical, that payment card manufacturers face increasing difficulties in obtaining chips needed to produce cards," the SPA wrote. "That crisis is showing no sign of ending halfway through 2021 and will spread throughout 2022. The SPA foresees significant disruptions in payment card production beyond the reasonable control of payment card manufacturers that will affect their ability to meet full demand."
Giesecke+Devrient, a global security technology group headquartered in Munich, warned that an already apparent 10 percent cut in payment card production could "trigger far-reaching disruptions" in terms of cash supply (think ATMs) and electronic payments, which would result in significant economic damage. "The negative effects on both the macroeconomy and the microeconomy would be extensive," B+D wrote in a statement released on Aug. 4.
"Although not necessarily getting the attention or the support from governments they deserve payment cards are a critical enabler for global economies, both from a consumer and an enterprise perspective," said ABI's Sealy. "Access to payment cards is a fundamental requirement to digitally transact and buy in both the physical and digital domains on a day-to-day basis."
Ralf Wintergerst, CEO at G+D, urged policymakers and bankers to address the issue of chip shortages to help minimize damages, particularly as they may relate to credit and debit cards. "Stable payments are the backbone of any economy," he said.
The chip shortage is also having a trickle-down effect on equipment manufacturers. Sphere, a New York-based software integration provider and ISO focused on healthcare, wellness and not-for profits, noted in a recent blog post that it is experiencing order delays.
"Sphere has been notified by our equipment vendors that they are experiencing increased product lead times given component shortages and the strain Covid-19 impacts have placed on the supply chain," the company wrote. Orders that generally took six to eight weeks to fill are now taking 24 weeks or more, the company explained.
"We're definitely seeing an impact, although not a complete stoppage," said Clint Jones, senior vice president of operations at PAX Technology.
PAX may not be shipping the same numbers of terminals to acquirers and their sales partners that they did a year or two ago, but the firm is filling orders, albeit in smaller quantities. "We're doing everything we can to keep everybody with some terminals on their shelves," Jones said.
For some ISOs, the situation has required changes in their terminal ordering routines. "We're ordering in smaller increments instead of in bulk," said Austin Mac Nab, executive sales director at VizyPay. "But it really hasn't impacted our business."
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