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The Future of Shopping

Newsweek | June 7-14 issue

Tiny silicon identity chips being put in everyday objects and even implanted under the skin are changing the way we consume. Will they also invade our privacy?

Antoine Hazelaar has a chip on his shoulder—or rather just beneath the skin of his left arm. It's a piece of silicon the size of a grain of rice, and it emits wireless signals that are picked up by scanners nearby. Ever since the 34-year-old Web-site producer had the chip implanted in his arm, he's enjoyed VIP status at Barcelona's Baja Beach Club. Instead of queuing up behind velvet ropes, Hazelaar allows the bouncer to scan his arm, and strolls right in. If he wants a drink, the bartender waves an electronic wand that deducts from the 100 Euro tab on Hazelaar's chip.

Such sci-fi clubbing is made possible by Radio Frequency Identification, or RFID, technology—tiny digital chips that broadcast wireless signals. RFID tags are cheap and small enough to be disposable, and they're getting cheaper and smaller by the day. Retail stores are beginning to use them as glorified bar codes, putting them on cases of bananas or crates of Coke so they can keep track of their inventory. The technology has the potential to transform our relationship to the objects around us. In theory, stores could dispense with checkout counters—instead, you'd grab items off the rack or shelves and walk out the door, while an RFID reader takes note of the items and takes the money right out of your e-wallet. Your clothes could tell your washing machine what settings to use. "RFID could help give inanimate objects the power to sense, reason, communicate and even act," says Glover Ferguson, chief scientist for the consulting firm Accenture. The prospect is exciting, but it raises troubling questions about the invasion of privacy.

For now, businesses see it as a way to save money and improve service. Big groceries, department stores and other retailers around the world are asking suppliers to put RFID tags on shipments of goods. Staff will know exactly where items are and when they came in. Customers will never have to leave the store empty-handed because items will never run out—wireless signals will alert staffers to dwindling supplies of diapers or soup. What's more, RFID will help combat theft and counterfeiting, problems that cost businesses $500 billion a year.

For some retailers, RFID is a way to provide a more seamless shopping experience. British retail giant Marks &Spencer is currently tagging men's suits in several London stores as part of a test. When you buy a size 42, the stockroom—alerted by the tag——sends up another. Metro's Future Store in Rheinberg, Germany, is putting tags on individual items. Better not steal a razor—its RFID tag will warn security. Pick up a bottle of Pantene shampoo, and a promotional film plays on a nearby screen. The cream cheese can tell staffers when it's gone off. Wincor Nixdorf and Texas Instruments are developing a system that suggests accessories to clothing items. In Prada's New York store, if you hold a dress near a monitor, you'll see models wearing it on a runway.

As the Baja Beach Club trial shows, RFID can tag people as well as goods. Some hospitals are using RFID bracelets on newborn babies and elderly patients with dementia. Children in one Japanese cram school wave RFID cards to alert their parents that they've arrived. Amusement parks in the United States are issuing RFID badges that light up to let people know when it's their turn on the roller coaster.

Privacy implications remain a big obstacle. The fear is that companies or governments could use the tags as a means of surveillance. "Supermarket cards and retail surveillance devices are merely the opening volley," says Katherine Albrecht, founder of the U.S.- based privacy group caspian. "If consumers fail to oppose these practices now, our long-term prospects may look like something from a dystopian science-fiction novel." Proponents counter that RFID tags transmit for only a few meters, and the data can be encrypted or deactivated once a product leaves the store. Nevertheless, caspian and other watchdog groups have won concessions from retailers. Wal-Mart and Benetton will only use the tags on pallets, not on individual items, and Metro has gotten rid of RFID-enabled loyalty cards. Utah now requires clear labeling of an RFID-tagged product; a bill in California would ban retailers from using RFID to collect information about consumers.

In any case, ubiquitous chipping is years away. The cost of RFID tags will have to drop from 20 cents each to five cents or less if they're to grace trillions of consumer items. Also, the signal doesn't pass through liquid or metal, which makes it tough to tag a can of soda or a nine-volt battery. And people may not like the idea of being surrounded by tiny transmitters sending out electromagnetic radiation. Undaunted, RFID chipmaker VeriChip is looking for big banks and credit-card firms interested in offering RFID-based e-wallets. If successful, they would truly give shouldering up to the bar for a drink a whole new meaning.