We’ve seen it with lumber, cars, and medical supplies. Unfortunately, shortages related to COVID-19 have become a daily occurrence. And it comes as no surprise anymore when someone says something is out of stock, or the supply chain for a product has been disrupted. But the latest and most profound shortage has been chips. You’ve probably heard that a shortage of these tiny electrical chips is causing delays in gaming consoles, cell phones, and cars. But there’s another place chips are necessary, and it’s a tiny piece of plastic you may use every day. That’s right, every time you approach a card reader to make a payment nowadays, it proudly says “insert chip.” But with chips in short supply, the impacts for the payment industry could be far-reaching.
How the chip shortage may impact consumers
The largest and most obvious issue with a chip shortage in payment cards is that consumers and businesses may not be able to get new or replacement bank cards. Payment cards, which according to the Smart Payment Association (SPA), account for 90% of non-cash transactions, are literally keeping the economy running. Consumers use them for online payments, in-store transactions, and ATM withdraws. Without these cards, it could turn into a devastating situation for consumers who wouldn’t be able to pay for goods and services or obtain the cash necessary to do so. But the shortage could also have positive implications, like forced reduced spending leading to consumers saving money to pay off debt or increase savings. The SPA, the trade body of the cards and mobile payments industry, urges governments and financial institutions to protect the 3 billion payment cards that need to be produced annually to stave off a bank card shortage. Others have proposed options like extending expiration dates on existing bank cards. But that strategy would only make cards more vulnerable to fraud.
Alternative payment options
At a time like this, it’s fair to wonder what type of payment options may rise to the top if a worldwide payment card shortage comes to pass. Bank to bank transfers: ACH and wire transfers are not commonly used for consumer transactions. But these methods could be used as long as you have secure means of sharing your bank’s routing and account number with the other party. Cryptocurrencies: Crypto is often touted as an alternative to the traditional financial system. And the digital wallets used in cryptocurrency trading do not require a payment card to make transactions, making them an excellent alternative during a chip shortage. Digital wallets: Apple Pay and Google Pay provide another way to use your bank account to make transactions. And with more vendors accepting these payment options, living life entirely on your phone is becoming more possible. Online payment companies: Services like Venmo and Paypal can be connected directly to a bank account to pay for transactions between friends and businesses. These tools allow consumers to operate solely in the online world and are another alternative that people may look toward in a bank card shortage.
The bottom line
In the coming months and years, priority will need to be given to the chips needed to fuel the payment industry. And organizations like the SPA are working hard to make sure that happens. A lack of chips could certainly cause forced disruption to the payments industry. But only time will tell the long-term impacts.