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Technology: Radio Frequency Identification Cones of Age

What's New in Technology

March 2005

Technology: Radio Frequency Identification Cones of Age

Radio Frequency Identification (or RFID) has been around for a long time. But, in recent years, we've seen it evolve from its simpler forms to give mega stores like Wal-Mart the means to better track their inventory, and to provide consumers with a faster way to pay for merchandise. Corporate spending on RFID-related projects was about $1.5 billion last year and is expected to almost triple by 2007. Future applications are mushrooming but the wild card in the mix may be consumers - and their privacy issues. What can it do, and where is it headed?

What is it?
Radio Frequency Identification, or RFID, first hit the headlines when Wal-Mart began requiring its largest suppliers to use RFID tagging on shipments headed for Wal-Mart warehouses and distribution centers. The retailer believes that the technology is the solution to better supply chain management and inventory control.

RFID is a simple technology that uses a thin antenna to broadcast data from a computer chip contained on an access card or a thin wallet sized card (like a credit card). Passive RFID applications yield their data, when they are scanned by an electronic reader (similar to the way bar codes are read). The tag reader "charges" the passive RFID tag, and this enables the RFID tag to transmit a signal back to the reader. The signal range in these "passive" applications is just a few feet - to help prevent data theft.

Obviously, this kind of application can be used in retail transactions - in situations where consumers now use credit or debit cards. Major credit card companies have been testing the concept in partnership with retailers. MasterCard and McDonald's Corporation tested the concept last year in Dallas with MasterCard's "PayPass" card that let diners pay for their food by zipping their cards over a reader. MasterCard is also collaborating with Nokia to test the concept of a cell phone with built-in RFID technology. American Express is working on similar RFID technology dubbed "ExpressPay," which has been tested in CVS pharmacies in various states.

Retailers like the speed of RFID transactions - which are faster than credit card procedures - and consumers like the fact that they don't have to hand a card to a merchant to swipe. To thwart thieves who might try to steal the RFID data, the chips in the tags are encrypted. Beyond the retail sector, other organizations and institutions have been quick to see the benefits of the new technology. Here are just a few examples of practical applications of radio tags:
  • Using RFID tags to convey patients' medical information (RFID has been used in Iraq to relay information via dog tags on wounded soldiers);

  • Implanting RFID chips into library books to provide a faster, more accurate check-out system; and

  • RFID-coded ID badges for employees or for visitors/attendees to special events.
RFID is not without its critics. Some worry that tracking applications (as opposed to the passive tags used in retail stores) that are engineered to automatically broadcast signals back to a central receiver could be used to violate personal privacy. Whether consumers will shy away from the idea of an "electronic leash" remains to be seen. Some school systems are evaluating the idea of issuing student ID badges containing RFID tracking chips to address schools' safety and security concerns, and to provide the means to monitor students. Within the medical and emergency response sectors, RFID technology might be a viable means to locate doctors and other personnel in the event of an emergency or crisis.

Privacy concerns linger, but nevertheless, many industry observers believe that RFID technology is here to stay and that we will see its uses multiply over the next few years.
 

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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