Shortage of chips drives up payment card costs

Payment cards are becoming more expensive as banks and other card issuers face shortages of computer chips, industry analysts say.

Analysis published by industry research firm The Nilson Report predicts prices for finished first-use plastic cards will rise between 5% and 20% this year and next. year. Prices also increased in 2021.

“These increases follow several years of lower prices for finished cards preceding the Covid-19 pandemic,” Nilson said in his April edition.

The American companies JPMorgan Chase, Citibank and American Express are among the largest credit card issuers in the world. A JPMorgan Chase spokesperson said, “We have no anticipated impact.”

The American Bankers Association declined to comment other than to refer to a November letter on the subject that it submitted last year to the US Department of Commerce. “It is a fluid situation and exact predictions are difficult to make,” the November 8 letter said. “However, without an adequate supply of chips, some payment card issuers may face challenges in consistently providing timely replacement of chip cards or issuing new chip cards to meet consumer and business demand in United States”

Nilson’s views were echoed by Phil Sealy, research director for digital security at New York-based ABI Research, a global research and technology consulting company.

“There have been several price increases over the last 12 to 24 months,” Sealy said in an interview. “There will probably be another increase coming shortly.”

Average chip selling prices are up 10% to 20% this year with further increases expected by the end of the year, Sealy said.

An August 2021 ABI report indicated that up to 1 billion payment cards were at risk of not being executed over an 18-month period due to a shortage of chips. ABI is updating its forecast and declined to discuss its research before publication.

Closure of Ukrainian businesses

The conflict between Russia and Ukraine affects chip prices because Ukraine is home to two companies that produce half of the world’s supply of neon, a key ingredient in making potato chips, Sealy said.

According ReutersUkrainian companies, Ingas, based in Mariupol, and Cryoin, based in Odessa, closed their doors when the war started earlier this year.

Chipmakers use neon to control the specialized lasers they use to make semiconductors. Neon prices have skyrocketed since the invasion of Ukraine. According to South China Morning Post, eThe average wholesale price of industrial-grade neon in China has increased nearly ninefold since the invasion began.

“Higher prices paid by card issuers pose the dilemma of whether to pass on their increased cost to consumers,” according to the Nilson report. “Charging more for the same plastic is not a good position. If consumers are going to be asked to pay more, the possibility exists to migrate them to a card perceived to have greater value, such as a metal card .

The supply of chips was already limited before the start of the pandemic in March 2020 due to increased demand from the automotive industry and telecom companies deploying high-speed 5G service, among other reasons, said Barb Else, vice president of exit solutions at Fiserv.

“Disruptions caused by the COVID-19 pandemic and global labor supply challenges have exacerbated the shortage, which is expected to continue through 2024,” Else said in an emailed statement. . “Financial institutions can mitigate the impact of chip shortages by developing and maintaining a rolling 12-month forecast of chip and card requirements and sharing that forecast with their card manufacturers.”

Some slower delivery times

For now, at least one chipmaker, Infineon Technologies, is still meeting demand for chips from its payment card customers. The trick is to stay in close contact with customers about their needs and be realistic about what supply will be available, said Oliver Manahan, senior director of business development at Infineon.

The biggest change right now in the tighter supply market is that if customers decide to increase an order, that’s usually not possible, Manahan said.

While the company responds to requests from its existing customers on a normal schedule because it had forecasts for them, new customers that were not part of its forecast will have to wait longer for deliveries, at least 52 weeks, compared to less. 18 months in the past, he says.

Fiserv told customers to place card orders four to five months earlier than usual due to longer lead times for chip shipments and to expect price hikes. According to Else, being flexible on design changes or major promotions until supply chain issues are resolved would also help.

Fiserv holds weekly status meetings with its suppliers to assess current chip availability and determine future delivery schedules. With vendor input, Fiserv has identified new chips that could be used in the cards.

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