Fewer choices at car dealerships and barren Best Buy shelves are the most obvious signs of the global semiconductor chip shortage – new motor vehicles and electronics rely heavily on the technology.
But tucked away inside secure vaults within bank branches, the supply of credit cards, debit cards and ATM cards is also at risk of running out. Local financial institutions are rich in plastic for now, but that may not last, with industry experts warning the chip shortage will extend through 2022 – potentially affecting up to 30% of the annual card supply nationwide.
And a card shortage could wreak havoc on the entire economy: consumers can’t buy products, sellers can’t make money and the banks whose profits depend in part on transaction fees lose that source of revenue.
“If a customer can’t use their card to make basic transactions, we risk the entire ecosystem being disrupted,”said Chrystina Giorgio, CEO and president of ICBA Bancard, a payment services company owned by the Independent Community Bankers of America.
Banks are planning ahead, increasing the number of cards they order from third-party vendors.
James A. Mignone, senior vice president and chief information officer for The Washington Trust Co., said the Westerly-based bank tripled its card orders in recent months. Washington Trust has yet to run out or even run low, but it was already encountering longer delivery times.
There’s a delicate balance between boosting reserves and not over-ordering. Much like the toilet paper shortage at the onset of the COVID-19 pandemic, hoarding can exacerbate supply issues, Giorgio said. And the chips don’t last forever, so ordering a lifetime supply is out of the question.
In fact, the main reason why the piece of plastic in your wallet has an expiration date is partly due to the technology embedded within what the credit card industry calls the EMV chip – Europay, MasterCard and Visa.
‘These are things you never thought,as a bank, you’d be worrying about.’
JAMES A. MIGNONE, The Washington Trust Co. senior vice president and chief information officer
While most chips can function beyond the three-year time frame of a typical credit card, their lifespans max out at six years, on average. Technological advances that improve the chip’s effectiveness, including fraud protection, also render chips irrelevant more quickly.
Chip-style cards have, as a whole, reduced the prevalence of fraud that plagued their magnetic swipe predecessors. But fraudsters are a determined bunch, and the pandemic ushered in a new wave of crime that had cardholders needing new plastic well before their existing cards would have expired.
The prevalence of pandemic fraud combined with an increasing reliance on contactless payment means Navigant Credit Union is issuing more cards at its branches than ever before. Timothy J. Draper, the credit union’s senior vice president of marketing, said Navigant is on pace to issue 3,000 more cards in 2021 than it did in 2019 – a 12.8% increase.
Normally, that would not be a problem. But higher demand combined with low supply is troubling. Like Washington Trust, Navigant has so far avoided running out of cards by ordering larger quantities and further in advance.
It is also encouraging members to add their cards to their digital wallets as a way to prepare for future shortages, Draper said. Paying from the card linked to a smartphone rather than continuously swiping or touching a physical card can extend its life, therefore reducing the odds that the plastic wears out too soon. However, bank customers still need a physical card to upload to their smartphone’s digital wallet.
ICBA Bancard is working to change that, with the hopes of rolling out a virtual card for which the plastic counterpart is optional by next year, Giorgio said.
Like any new technology, it’s a hefty undertaking: financially and in terms of security, since this kind of plastic-less card offers new opportunities for criminals. But in her eyes, it’s an investment worth making, and sooner rather than later.
Washington Trust has similarly sped up the timeline for some of its own technology investments based on the pressure from the chip shortage. Unlike Navigant and many other financial institutions, Washington Trust has never offered “instant issue” of cards within its branches, preferring to avoid the security challenges by simply mailing the cards from a third-party vendor to customers.
Now, having direct control over its stash of plastic seems more important than ever, and the bank is looking to start storing – and issuing – cards in branches next year, Mignone said.
While bank cards haven’t run out yet, the chip shortage is creating headaches.
“We’re working much harder to do the same things we used to do before with ease,” Mignone said. “The whole process just takes more work, more oversight, more thought. And these are things you never thought, as a bank, you’d be worrying about.”
Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.
