Threat to Payments from Chip Shortage

A shortage of EMV chips is creating real risks for payments since these chips enable ATM cash withdrawals and all forms of digital payments.

Giesecke+Devrient (G+D) recently published a piece about the shortage of chips from the semiconductor industry. This has been widely picked up in the press. The shortage is driven by growing demand as the world goes digital and the capabilities of electronics are used in ever increasing places. The US-China trade dispute and the COVID-19 pandemic have also played their part in creating what is now a crisis.

Increasing supply is a major issue since it takes a couple of years or more and, according to the papers, billions of dollars to build a plant. Forbes reported that Intel will spend $20 billion on two new factories and Taiwan’s TSMC plans to spend $28 billion.

Payment cards contain chips and so the impact of the shortage has implications for payments as well. The EMV chip used in modern cards stores data and has microprocessors that interact with ATMs, card readers and point-of-sale terminals and for digital payments. According to EMVCo, there were 10.8 billion EMV chip cards in use at the end of 2020. EMVCo manages the specifications that enable card-based payment products to work. Three billion new EMV cards are issued a year, according to G+D’s article.

The implications for payments are significant since EMV cards are used for so many day-to-day activities, including for many mass transport systems.

Digital wallets don’t escape either since you need a payment card to set up ApplePay, Google Pay etc.

Forbes suggests that the situation will maintain through until as late as 2023 because data centre spending will now start to pick up, cloud computing and cryptocurrency mining will continue to grow and ‘the unstoppable desire to instrument everything’ will continue.

Perhaps ‘virtual cards’, see Payment News, could be an answer? Or simply extend the expiry date on cards? Perhaps closing all those bank branches wasn’t such a good idea.