Sitting down to eat at our favorite Mexican restaurant the other evening, my wife and I started our usual conversation on how it's impossible not to devour the chips and salsa that are always immediately placed in front of us. And it seems that there is always an endless supply of these chips, so much so that there are usually always chips left in the basket when we leave the table. Unfortunately, this country and others around the globe are not experiencing a similar oversupply of semiconductor chips. In fact, it's quite the opposite, as many industries, including the payments industry, are facing a shortage
of microchips.
The effects of this chip shortage on the automotive, smartphone, and video gaming industry have been covered extensively. But did you know that it has the potential to disrupt the payments industry as well? A recent American Banker article highlights how the global chip supply shortage affects the payment card industry and discusses the potential implications for cardholders.
Recently, someone representing a technology provider for chip-enabled cards told me that approximately 400 million chip cards are issued to U.S. cardholders each year. These cards include replacements for expired, damaged, and lost or stolen cards as well as cards for new accounts. He said he believes that with an approximate chip shortage of 30 percent, the industry may not be able to produce up to 126 million cards in the coming year.
With a shortage of chips and issuers unable to produce their usual allotment of cards, some cardholders could lose access to a revolving credit line from a credit card or to funds in their bank account through their debit card when their current cards expire. As the American Banker article states, it seems logical that to mitigate the shortage, issuers may choose not to reissue inactive or less used cards. This possibility could affect those consumers with credit or debit cards expiring soon who might only use their cards sparingly. As an alternative to physical cards, issuers could choose to issue virtual cards, which could be loaded into a mobile wallet and used anywhere contactless payments are accepted. Though mobile payments are growing, I am not convinced that consumers are ready to adopt virtual cards.
My wife and I will continue to visit our favorite local Mexican restaurant. I also am certain that I won't be able to resist that endless supply of chips that will meet me at our table. But with the current semiconductor chip shortage, I am not as certain about having access to all my accounts, because several of the cards in my wallet are set to expire over the next year.
By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed