Sofia Martinez
There is a global shortage of semiconductors, also known as microchips, which are essential components of modern electronics. This shortage has been affecting the automotive industry for the past three years, and it is now causing delays in the issuance of new credit and debit cards. Consumers are facing longer wait times, especially those who are credit union members. The shortage has also led to a push for digital wallets like Apple Pay and Google Pay, which are increasingly being used as a more convenient and secure option for payments.
| Characteristics | Values |
|---|---|
| Reason for shortage | Shortage of semiconductors, also called integrated circuits (ICs), microchips, or chips |
| Affected products | Credit and debit cards |
| Wait times | Up to 8 weeks |
| Affected institutions | Credit unions and regional banks |
| Unaffected institutions | Larger card issuers, such as American Express, Chase, and Discover |
| Countries affected | USA, Sri Lanka |
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What You'll Learn
Credit card plastic shortage causes
Credit card issuers face a shortage of semiconductors, also known as integrated circuits (ICs), microchips, or simply chips. These chips are essential components of almost all modern electronics, including credit cards. The shortage has been caused by several factors, including:
- Increased demand for electronics during the COVID-19 pandemic: Purchases of home electronics like gaming consoles, computers, and TVs skyrocketed during the pandemic, leading to a surge in demand for semiconductors.
- Manufacturing disruptions: Worker illness during the pandemic also regularly disrupted the manufacturing of semiconductors.
- Underestimation of vehicle demand: According to Bloomberg, the automotive industry underestimated the demand for vehicles and, therefore, the demand for chips when the pandemic hit.
- Security concerns: The adoption of chip-based credit cards was driven by security concerns, as magnetic strips are vulnerable to fraud. The transition to chip-enabled cards further contributed to the demand for semiconductors.
The chip shortage has resulted in longer wait times for new and replacement credit cards, with some consumers reporting delays of up to eight weeks. The impact varies depending on the card issuer, with larger issuers having the resources to secure chips faster.
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Delays in receiving new cards
The wait time for new credit cards has increased from about six to ten business days to six to eight weeks. However, this varies depending on the card issuer, as larger issuers can pay suppliers extra for chips. Sam Gazeley, an industry analyst for digital security at ABI Research, commented that:
> "Smaller credit card issuers and credit unions are going to be experiencing the longest delays."
Some major institutions like American Express, Chase, and Discover do not seem to be experiencing delays yet, but credit unions and regional banks are seeing significant holdups.
The chip shortage is not the only factor causing delays in receiving new cards. In Sri Lanka, for example, banks have been unable to issue new credit and debit cards due to a shortage of imported plastics.
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Digital wallets as an alternative
The global chip shortage is causing delays in the issuance of new credit and debit cards. This has led to wait times of over six weeks, especially for credit union members. As a result, consumers are increasingly turning to digital wallets as a convenient and secure alternative to physical credit cards.
Digital wallets, also known as electronic, virtual, or e-wallets, are applications or online services that allow individuals to make fast and secure transactions through mobile phones or other electronic devices. They eliminate the need to carry multiple physical cards and provide an extra layer of security through various authentication methods, such as passphrases, codes, and biometrics.
One of the most popular digital wallets is Apple Pay, which offers secure and private transactions and can be used for in-store purchases, public transit payments, and sending money to friends and family. Money can be stored directly in the Apple Pay account, or users can link a debit or credit card to make payments. Additionally, Apple Pay can be used for contactless payments, where users simply wave their phones in front of a payment terminal.
Google Pay is another widely used digital wallet that is available on various smartphones. It allows users to make in-store purchases and send and receive money. Unlike Apple Pay, Google Pay stores users' passwords and card information on its servers and uses PIN-based security features.
Other notable digital wallets include Samsung Pay, PayPal, Venmo, and Zelle, each offering its own unique features and compatibility with different devices and payment methods.
The use of digital wallets has become increasingly prevalent, with nearly 90% of consumers adopting some form of digital payment in their daily lives. The COVID-19 pandemic accelerated this trend, as the no-contact nature of digital wallets made them a more appealing and safer option compared to physical cards, which can be lost or stolen.
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Impact on retailers
There is currently a global chip shortage, which is causing delays in the issuance of new credit and debit cards. This shortage is due to a surge in demand for semiconductors during the COVID-19 pandemic, as purchases of home electronics increased significantly. Additionally, the automotive industry underestimated the demand for vehicles and, consequently, chips. These factors have resulted in a shortage of credit and debit cards with chips, impacting both consumers and retailers.
While the chip shortage has led to longer wait times for new and replacement cards, retailers are weathering the storm. The shift towards digital payments and the increasing use of digital wallets, such as Apple Pay and Google Pay, have mitigated the impact of the credit card shortage on retailers. Consumers are embracing digital payments, with nearly 90% of consumers using some form of digital payment in their daily lives, according to a 2022 report. This trend is expected to continue, reducing the reliance on physical credit cards.
Retailers are also benefiting from the increased use of credit cards during the coin shortage, which was caused by the slowed circulation of coins during the pandemic. Credit cards are widely accepted and provide convenience, allowing cardholders to make purchases and build credit. Additionally, some retailers, such as Target, have reported that their store cards with chips are not experiencing any issuance delays.
However, the credit card chip shortage may still have some impact on retailers, particularly those who rely heavily on cash transactions. Smaller retailers or those who have not yet adopted digital payment systems may face challenges if customers experience long wait times for new or replacement credit cards. Additionally, there may be concerns about a potential decrease in consumer spending if cardholders are waiting for new cards or if their purchasing power is reduced due to economic factors.
Overall, while the credit card chip shortage has the potential to impact retailers, the widespread adoption of digital payments and the availability of alternative payment methods, such as contactless cards and digital wallets, are helping to minimise the effects on the retail industry. Retailers who have embraced digital payment systems and promoted the use of credit cards during the coin shortage may be better positioned to weather the storm of credit card issuance delays.
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The future of plastic payments
However, the impact of the chip shortage on the future of plastic payments may be mitigated by the growing adoption of digital wallets and contactless payments. Consumers are increasingly relying on digital payment methods like Apple Pay, Google Pay, and smartphone tapping, which offer greater convenience, security, and a no-contact payment experience. This trend is expected to continue, potentially reducing the dependence on physical credit and debit cards.
Additionally, the coronavirus pandemic has also led to a coin shortage, which has further highlighted the convenience and benefits of using credit cards. Credit cards offer a widely accepted, sanitary, and convenient form of payment, allowing cardholders to make purchases now and pay later while also building their credit scores.
While major financial institutions like American Express, Chase, and Discover have not experienced significant delays in card issuance, regional banks and credit unions are facing notable holdups. This disparity may drive consumers towards larger institutions that can provide faster card issuance and more advanced digital payment options.
In some regions, such as Sri Lanka, there have also been reports of plastic shortages affecting the issuance of new credit and debit cards. However, this issue does not seem to be as widespread as the chip shortage.
Overall, the future of plastic payments is likely to be characterized by a continued shift towards digital and contactless payment methods, driven by both technological advancements and supply chain disruptions. While physical credit and debit cards may still play a role, their dominance is expected to diminish as consumers embrace the convenience, security, and accessibility offered by digital alternatives.
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Frequently asked questions
There is a global chip shortage, which is causing delays for new credit and debit cards. Credit card issuers face chip shortages, with some consumers waiting as long as eight weeks for a new card.
Chips, also known as semiconductors, integrated circuits (ICs) or microchips, are essential components of almost all modern electronics.
The chip shortage has led to longer wait times for new credit cards, especially for credit union members. However, major institutions like American Express, Chase, and Discover do not seem to be experiencing delays.
