Coming everywhere near you: RFID

Author: Vicki Ward, Wireless e-business Solutions Leader, IBM Asia Pacific

Try this quick quiz: What tiny technology can help cut credit card fraud, turn a piece of plastic into an intelligent stored value card, improve customer relationship management at banks and retail outlets, and perform countless other valuable tasks? Give up? The answer is RFID tags. And based on the momentum of their uptake in the first half of 2003, they are about to enter everyone's lives much sooner than many industry observers had expected.

RFID -- radio frequency identification -- is a technology that is rapidly crossing over from being expensive and experimental to universal usefulness. The basic concept is quite simple: attach small coiled radio antenna to a microchip and implant it in anything that needs to be read, scanned, monitored, warehoused or alerted. When the RFID tag is activated by a reader device, it transmits information from the chip to a central computer system. About two kilobytes of information -- less than one-tenth of the size of this document in my word processor -- can be held on a single chip.

The uses of RFID tags are endless. Try these for starters: animal identification, security access, theft prevention for retailers, asset and inventory tracking, automatic toll collection, wildlife and livestock tracking, monitoring of criminals under house arrest, supplying work-in-process data for manufacturers, shipping data, container and air cargo tracking, and vehicle fleet maintenance. But these are just the superficial uses of RFID.

Drill down below the external gee-whiz applications of RFID and its real, revolutionary aspect is this: it will fundamentally change how organizations manage their data. At present, businesses are focused on using RFID to streamline data collection and data consistency. For example, tracking products through the manufacturing cycle and then locating them downstream at warehouses and retailers. With RFID, each product ca n be identified by physical location, manufacturing history and distribution path.

Eventually, RFID and other automation technologies will work like an impressionist painting: combining tiny grains of product data -- which were once unobtainable and/or unmanageable -- into a coherent picture of transaction data that can be manipulated and managed for entire enterprises. Whole supply chains on a real-time, co-operative basis can then share such data.

Such data-sharing systems for fully integrated supply chains will require multi-layered security systems, providing protection from point-of-request to back-end systems and data transport mechanisms. In other words, realizing the full potential of RFID will involve software, hardware, data storage and security systems as well as core technology changes.

The applications of this technology are limited only by human imagination and, until recently, by expense. But improvements in RFID tag manufacturing techniques and the rapid uptake of the technology by companies and governments are relentlessly cutting the unit price of tags.

At costs as low as 5 cents per unit, RFID tags are now entering the price range at which they will become cost-effective for many daily uses. At the end of April 2003, the German retailer, Metro Group, announced the opening of Future Store, an experimental outlet that will feature RFID technology in warehouse management, shelf-stacking control and automated checkouts. Customers will be able to pass through a payment area without having to queue and wait for their purchases to be scanned and priced.

Other RFID implementations include:

• E-ZPASS, an automated car toll system on roads and bridges in the northeastern United States. The system allows motorists to pay tolls electronically, reducing travel time and improving the efficiency of toll collection.
• The Port Authority of New York and New Jersey is using an electronic toll collection system at its Hudso n River crossings. It recently approved a $30-million project to install E-ZPass in parking spaces at Kennedy International, Newark International and La Guardia Airports in the next 12 months.
• MobilExxon Speedpass uses RFID technology to enable customers to buy petrol and other goods from its petrol stations in the US without using cash or credit cards. The customer waves an RFID key fob near the petrol pump and a transponder recognises the customer's dedicated ID code. It then automatically charges purchases to an existing credit/debit card. By 1998, Mobil reported that there were 1.5 million Speedpass customers and that petrol sales had increased by $8 million per month. Today, Speedpass may be used as a credit card to purchase items at convenience stores. Its use is being extended to Exxon stations and Mobil reports that there are now five million Speedpass customers. Few had predicted that wireless ID cards would so easily replace magnetic stripe credit. RFID tags have, in effect, become credit cards.

The ease with which RFID tags have quickly been applied with great success to functions beyond their original purchase reason -- such as parking lot passes being used for purchases at convenience stores -- indicates their potential to multiply efficiencies within a retail/service system. For example, airlines are considering using RFID tags to cut the rate of lost luggage, which costs the airline industry more than US$100 million annually. By tracking luggage with RFID tags, there could be a substantial reduction in lost baggage. Such an improvement would reduce compensation payments and increase customer satisfaction. And that would be a double win-win situation for airlines.

Since late last year, IBM has been working on a customer identity concept that is based on putting RFID tags into passbooks, wallets or cards. The genesis of the project -- and its internal project title of "Margaret" -- goes straight to the heart of customer relationship management at banks. Margaret is the m other-in-law of Paul McKeown, IBM's World Wide Leader for smart cards solutions. One day, when Margaret visited her local bank branch at which she has been a customer for 30 years, a new employee failed to recognize her and insisted on proof of identity. Unused to carrying such documents, Margaret could not prove who she was and had to leave the bank empty-handed.

McKeown saw the potential for an improvement in customer relationship management at bank branches, which are increasingly used by older, wealthier customers, or those seeking to do more complex transactions such as visiting a wealth management advisor. These people are desirable clients for the financial services sector.

McKeown thought that an RFID tag fitted to the customer's bank card or passbook could be used to signal their arrival at a branch. As they pass through the doors, the card would alert a customer information system. Bank staff could personally greet high-net-wealth customers, or customers could be greeted by name by tellers, who would already have their account information on-screen when they arrive at the counter. The system would be an opt-in feature, which customers could choose as an extra service, and would be backed up by password or secure questions if required.

IBM's new system was demonstrated at one of IBM's CEO conferences, held in South Africa in February, 2003. Several European banks have expressed interest in running pilot tests using the technology, which could also have applications for selling customers new financial products and services. The concept uses technology to personalize the touch of retail banks in every branch where it is installed. For customers like Margaret, every one of their bank's branches would be able to treat them as loyal and valued customers.

RFID is not a miracle technology, although it has features that would have seemed miraculous until recently (imagine a stock item reporting to a warehouse that it has left its shelf, been purchased and needs to be replaced). Be cause the tags and readers rely on radio frequencies, technical issues need to be adjusted at each installation, such as radio interference from external sources. And the price of tags will need to drop further below the US5-cent mark to make it a viable alternative to bar-code technology for most low-cost consumables.

However, the extraordinarily rapid pace of development and uptake over the past 12 months indicates that RFID technology is reaching a critical mass of acceptance. It will enable productivity improvements, higher standards of customer service, and increased personal and financial security.

Read other articles in this issue:

· Online tools provide enhanced market trading channels
· Banks' payments-driven revenues: Why banks need payments czars
· Making Bancassurance really work
· Advanced ATM's: You can lead a horse to water