How the Semiconductor Shortage Is Putting a Crimp in Chip Card Production

The global shortage of semiconductors that has impacted myriad industries that use the chips, from automakers and electronics manufacturers to defense contractors and even soap manufacturers, is poised to affect payment card manufacturers, the Smart Payment Association announced Monday. 

Bottlenecks in the chip card supply have become so acute that payment card manufacturers face increasing difficulties in obtaining the chips needed to produce cards, the SPA says. As a result, chip card manufacturers can expect hiccups in their production capacity to continue throughout 2022, the SPA says. More than 3 billion EMV-standard based payment cards need to be produced and delivered annually to consumers worldwide, according to the SPA.

The capacity constraints within the semiconductor industry are affecting availability of electronic chips for payment cards, mobile phones used for digital payments, and payment terminals at varying levels, says Jason Bohrer, executive director of the Secure Technology Alliance and U.S. Payments Forum.

The root cause of the shortage is the Covid-19 pandemic, which forced many chip manufacturers to temporarily shut down or reduce production out of health and safety precautions for workers. As a result, manufacturers have yet to overcome the shortage created by the production stoppage even as the global economy begins to reopen. In all, some 169 industries have reportedly been affected by the shortage. 

“It’s a fluid situation where actual projections are still being formulated,” Bohrer says by email. “The expectation is that capacity constraints will continue to affect the industry through the back half of 2021 and could potentially continue through the early part of 2022.”

To help address the problem, industry associations are raising awareness about the problem to spur action. For example, the SPA, which did not respond to a request for comment, has initiated actions with payment networks, central banks, and governments to obtain, from semiconductor foundries, higher priority on the production of chips needed for credit and debit cards and to ensure their adequate supply.

“Industry associations are raising the awareness to this potential issue and the impact to the economy as capacity decisions are made toward various industries within the economy, i.e., payments industry, automotive industry, defense, etc.,” Bohrer says. “Integrated circuit manufacturers are also actively increasing capacity at the various semiconductor foundries as people return to work. Other near-term options are also being reviewed between the integrated circuit manufacturers, the payment brands, card manufacturers, [and] payment-terminal manufacturers to minimize the impact to near-term demand.”