Chip shortages are creating long waits for credit cards, but retailers are weathering the storm

The pandemic hastened the transition to cardless transactions, but don’t expect physical cards to disappear anytime soon.
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Along with the metric system, celsius, and beans on toast, Americans were not what anyone would call “early adopters” when it came to equipping credit cards with chips.

“Chip-based credit cards are a decade old; why doesn’t the US rely on them yet?” asked an Ars Technica headline in 2014. Known as EMV—named for the three companies that created the standard, Europay, Mastercard, and Visa—the technology was invented in 1994 because magnetic strips are vulnerable to fraud, and at the time of that nine-year-old article, chip-enabled cards were common throughout Europe, Australia, and elsewhere.

Motivated by breaches, including hackers stealing credit card information from ~40 million Target customers in 2013, the US finally got on board:

  • Visa and Mastercard required retailers to have chip-card readers by the end of 2015, and that year the Aite Group projected that 70% of credit cards in the US would have chips.
  • In the 12 months that ended June 2022, chip-enabled cards were used for 85% of transactions in the US, according to standards group EMVCo data cited by the Washington Post.

Like automakers, credit card issuers face chip shortages, with some consumers waiting as long as eight weeks for a new card.

For retailers, the prospect of consumers having to rely on cash could sound concerning. But thanks to factors including the rapid growth of digital payments, the credit card chip shortage seems unlikely to be keeping any retail executives up at night.

Not in the cards: Sam Gazeley, an industry analyst for digital security at ABI Research, which is based in London, told us the wait for new and replacement cards has generally gone from about six to 10 business days to six to eight weeks. But that varies greatly depending on who issued your card because larger card issuers have the resources to pay suppliers extra for chips.

“Smaller credit card issuers and credit unions are going to be experiencing the longest delays,” Gazeley told us. “They simply don’t have the same scale as larger banks.”

As for the impact on retailers, Hemal Nagarsheth, a partner in the financial services practice of global strategy and management consulting firm Kearney, did not expect it would be significant.

“And the reason for that is if I were a big-box retailer, a majority of my customers probably have more than one credit card,” he said. “Outside of a lost-wallet scenario, all of my credit cards wouldn’t generally get compromised at the same time.”

  • Americans have an average of 3.84 credit cards, according to Experian data from 2020.
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One retailer whose store cards have chips, Target, is “not having any issues” with delays for its RedCard, Joe Poulos, senior director of communications at Target, stated in an email.

Chips ahoy: Another mitigating factor, of course, is that consumers increasingly are paying with digital wallets like Apple Pay.

“Since the pandemic…we’ve seen a rapid acceleration of digitization of payments and a reliance on contactless [payments],” Gazeley said.

  • In the third quarter of 2022, 49% of Americans said they’d used a digital payment at some point in the previous three months, up from 38% who’d done so in the first quarter of 2021, according to JD Power data.

While consumers may be waiting for credit cards, it’s increasingly the case that they can start using them before they arrive. It is, in payments parlance, “instant issuance,” and it means as soon as a credit card application is approved, the card can instantly be used either in a digital wallet for in-store purchases or e-commerce.

“We’re moving more towards now a model where instant issuance is becoming more and more present in the market,” said Gazeley, who estimated that in North America and Europe today, 40%–60% of cards are issued instantly, a portion he projects will grow to 90% by 2027.

One indicator that consumers are interested in instant-use credit cards is how often lists of them are recommended on sites like CNBC, NerdWallet, and WalletHub.

Chips and dips: Phil Sealy, research director at ABI Research, said he expects the credit card chip shortage should begin to dissipate in the second half of this year.

“I’m not saying it will go away,” Sealy said. “But it should start easing.”

Of course, chip shortages would be moot if physical cards were eliminated, with issuers sending them to digital wallets and not bothering with plastic.

Don’t hold your breath, said Sealy.

“Never say never,” he said. “Maybe we’re talking 20, 25, 30 years into the future, potentially. But I think for the foreseeable future, there’ll be little to no disruption to the actual card market driven by mobile.”

Retail news that keeps industry pros in the know

Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.