By Tina Giorgio
As COVID-19 continues to affect day-to-day business operations, a semiconductor chip shortage has emerged as a real challenge for banks. Industries from automobile manufacturing to consumer electronics have been reporting issues for months, and now the effects have spread to the payments industry.
Semiconductor chips are integrated into each EMV card created, and in the U.S., 1.6 billion chip cards were issued to U.S. cardholders last year. As Douglas King, payments risk expert at the Federal Reserve Bank of Atlanta recently noted, if we assume an approximate chip shortage of 25 percent, the industry may not be able to produce up to 400 million cards in the coming year.
Despite these growing concerns, community bankers can take steps to prepare for a potential shortage and circumvent customer impact. Consider the following strategies to stay on top of card issuance and ensure your bank can continue meeting customer needs.
- Request an extension from Visa or Mastercard. Chips will continue to work until the card networks say they are no longer valid—generally up to six years. Since chip and physical card expiration dates don’t always align, if the chip’s lifespan lengthens, the card will continue to work until its printed expiration date. In short, if you can get an extension on the timing for the chip, it may increase the longevity of the card itself. Contact your card processor for more information.
- Order earlier than normal. A typical card order takes approximately 12 weeks, but with an inventory crunch, providers are cautioning that new orders could extend 16-to-20 weeks or more. So, don’t wait until you reach your normal reorder levels, but order only what you need to ensure there’s enough inventory for everyone to meet customers’ needs.
- Reconsider timing of rebrands and mass inventory requests. To respond to low inventory and availability, scale back card reissuance to only those “must-do” scenarios. For example, reschedule full-scale rebrands and nix mass reissues. Instead, provide new cards on a case-by-case basis and as-needed basis.
- Consider contactless. This is an optimal time to explore switching to contactless cards since contactless card embedded chips are different than contact chips. Contactless payments using a digital wallet at the point of sale are growing faster than those made with physical cards. So, the timing may be right to make the change. Your card production vendor can tell you how many and which types of chips they have in inventory.
- Explore offering virtual cards. It’s a leap to move from a standard plastic issue to a virtual card with no physical presence, but more and more business customers are embracing the virtual card concept. In fact, a PYMNTS study found nearly 23 percent of accounts payable professionals want to integrate virtual cards into their broader B2B operations. With that in mind, the chip shortage could offer a window to pilot a purely virtual card with customers on an individual level as their chips or cards expire.
ICBA Bancard is in regular talks with card processors and will continue to update you on developments on the chip shortage through our weekly “Payments News and Notes” (PNN) emails. If you are not receiving PNN currently, update your ICBA subscriptions here.
In the meantime, we encourage you to respond to this challenge just as you have with every other COVID constraint: with agility, creativity, and resiliency. I am confident that your bank will find a way to transform this chip shortage into new opportunities to serve your customers. Because when the chips are down, community banks go all-in to find a solution.
Tina Giorgio is ICBA Bancard President and CEO.