The price of EMV-compliant chips supplied to contactless payment card manufacturers increased by more than 50% in 2021 and is expected to rise by more than 20% during 2022 with the overall cost to card issuers for finished first-use plastic cards rising by between 5% and 20% during 2021, according to US research firm Nilson Report.

In addition, the researchers predict that card issuers will face “similar price hikes” during the remainder of 2022 and in 2023 following “multiple years of price declines for finished cards preceding the Covid-19 pandemic”.

The researchers identify shortages in the availability of EMV-compliant chips amounting to a 10-15% shortfall of supply in relation to demand as well as supply chain disruption caused by shipping, energy, labour and material shortages as being among the key drivers of the price increases.

The war in Ukraine could also contribute to further supply chain disruption because “certain input materials needed to make chips, including neon gas and palladium, are sourced in Russia and Ukraine,” the researchers say.

“Since the first quarter of 2020, multiple factors have contributed to shortages in the availability of EMV-compliant microprocessor chips and a concurrent increase in prices for finished credit, debit and prepaid cards delivered to issuers worldwide,” the researchers say.

“In 2021, card manufacturers received between 10% and 15% fewer chips from semiconductor manufacturers, which are located mostly in South Korea and Taiwan, than the amount they needed to deliver finished products to card issuers.

“This year, there is expected to be another 10% gap between supply and demand.”

“Higher prices paid by card issuers presents the dilemma of whether to pass along their increased cost to consumers. Charging more for the same plastic is not a good position to be in,” the researchers add.

“If consumers are going to be asked to pay more, the opportunity exists to migrate them to a card perceived to be of greater value such as one made of metal. Other options would be to move them from first-use plastic to a card made of recycled or ocean-reclaimed plastic or one made of biomass.”

ABI Research predicted that chip shortages could prevent 1bn payment cards being issued worldwide over a period of 18 months in August 2021.

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