Across the United States, companies in a range of industries are unable to obtain the semiconductor chips necessary to power the products that propel economic growth. While on the surface this may appear to be a short-term supply chain disruption, the chip shortage has material economic impacts across the American economy, including a disruption of the secure, near-instant payments ecosystem consumers expect and rely on. Customers, small businesses, and organizations across the country need policymakers to prioritize the development and distribution of chips for the technologies that are critically important to the American economy, such as payment cards, or these economic hurdles will remain in place. New research from the Smart Payments Association estimates that 120 to 210 million cardholders worldwide are at risk of not receiving a payment card in the second half of 2021, and anywhere from 280-540 million could fail to receive a card in 2022 if changes to the chip supply chain are not quickly implemented.
How Chips Are Used In Cards
Many people fail to realize that the power behind modern payment systems starts with the small EMV chip embedded in debit and credit cards. EMV cards uniquely secure data every time a card is used by creating a unique code, preventing the re-use of skimmed financial account information that traditional magnetic stripe cards can be susceptible to. The transition from “swiping” a stripe to “dipping” or “tapping” a chip, has made the payment process far more secure and convenient: Counterfeit fraud experienced by U.S. chip-enabled sellers decreased by 80% from 2016 to 2019. Whether through a contactless interaction or card insertion, the EMV chip ensures smooth and secure economic transactions for consumers and businesses alike.
How The Chip Shortage Is Impacting The Economy
The continued security and efficacy of payments enabled by EMV chip cards depends on the continued availability of the chips themselves. The transition to chip-based payments continues apace: In the U.S. in 2020 there were over 1.1 billion chip-enabled cards in circulation, accounting for almost 73% of card-present transactions. In 2019, credit cards alone accounted for more than 108.6 million transactions a day, with an additional 77.4 billion debit card transactions that year in the United States. Chip card adoption is even higher in the rest of the world, with at least 95% of card-present transactions using an EMV chip in Europe, the Middle East and Africa, and Canada, Latin America, and the Caribbean in 2020. Combined, this accounts for a huge portion of global economic activity—and given the international nature of semiconductor supply chains, it’s vulnerable to disruption due to the chip shortage.
The possible shortage of chip-enabled cards also raises a host of safety concerns. Without chips, issuers may be forced to revert to issuing mag-stripe only cards, possibly reversing the gains achieved in fraud reduction in recent years and making consumer data more vulnerable.
Due to the important role payment cards play in the American economy, this chip shortage could result in a disruption to American commercial activity, and the nation’s continued economic recovery. For example, as the federal government continues to integrate debit cards for social safety net payments and various relief programs, this shortage could have the unintended consequences of disrupting the disbursement of aid to those across the country.
How Government Can Respond
We need an all-hands-on-deck approach to the current chip shortage. As Congress and the Biden Administration continue to prioritize this issue and search for solutions, they cannot omit the impact this will have on the payments industry. It will be crucial for leaders to ensure payment cards are given high priority in the chip production process to ensure their adequate supply. Urgent action is needed as securing an uninterrupted supply chain for payment cards is necessary to foster continued economic activity and recovery. It will take all of us working together to solve this pressing issue, and the payments industry looks forward to working with the Biden Administration to develop lasting solutions.