The worldwide chip shortage has been widely reported to be a significant issue for car manufacturers and computer makers. The supply chain was disrupted during the pandemic, a large manufacturer in Japan suffered a fire and other trade issues all have played a part.
The American Banker highlighted a lesser-known issue which is the supply chain disruption in computer chips is also showing up in the production of cards with EMV compliant chip technology.
The questions that come to mind are; will the projects to speed up the migration to contactless cards have to slow down, and will financial institutions start to horde chip cards like its toilet paper in early 2020? Here’s what the American Banker found:
“If a serious shortage hits, issuers could drop cards they consider inactive, which is fine for those that hold a few credit cards or a couple of debit cards, but for those with a single credit or debit card and rarely use them—such as marginalized consumers—they could be left without a card to use,” said Oliver Manahan, director of business development at Infineon Technologies, which provides technology for chip-enabled payment cards.
At the very least, chip-delivery times could stretch out from a few weeks to a few months. To avoid a crisis, issuers and card networks could prepare to fast-track card certification while issuers could strategically manage inventories and optimize card-reissuance.
The Electronic Transactions Association, representing thousands of merchants along with many card networks and issuers, said it’s watching the chip-shortage situation closely.
Wells Fargo is not concerned about the chip shortage affecting its operations.
“Wells Fargo is aware of concerns in the market around a possible global chip shortage, and have placed orders to get ahead of potential impacts on supplies. We feel confident in our ability to generate physical payment cards without disruption while continuing to support our customers’ payment choice,” the bank said in a statement.
Several other card issuers declined to comment on the status of their supply of chips for payment cards.
There’s probably room to prune some cards; the average U.S. consumer has four credit cards, according to Experian’s 2019 Consumer Credit Review. But the timing of sunsetting inactive cards this year could be bad for payment card competition and financial access — including the cards needed to access cash from ATMs — as the economy climbs out of the pandemic.
“Issuers may need to reevaluate what constitutes an active card and drop those they consider inactive,” Manahan said.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group