myPOS blog Tips

Radio Frequency Identification: What is RFID, and how does it work?

RFID has gradually emerged as a powerful substitute for traditional bar codes in today’s dynamic and rapidly evolving digital world. 

Used in various industries, from supply chain and inventory management to healthcare, RFID technology offers a more practical and efficient alternative to UPC barcodes in the form of smart labels or RFID tags.  

In the following sections, we explore the meaning of RFID in detail. We dive in-depth into how RFID works, its benefits and drawbacks, and how it relates to the payments industry.

Understanding RFID technology 

Created in 1983 by Charles Walton, RFID only gained popularity in 2002 due to initial high costs and uncertainties among the public. 

By 2023, the RFID market was valued at £12.3 billion, and forecasts predict its expansion to £32.4 billion by 2032. In the UK alone, over 25% of top retailers used RFID tags in their stores in 2016. This percentage has grown dramatically since then. 

One of the key drivers behind this growth trend is the reduced costs of tags – a fundamental component of RFID technology. 

But to fully understand the expansion of the RFID industry, it’s essential to gain an overview of what the technology is and how it works.

What does RFID mean?

RFID stands for Radio Frequency Identification and represents a technology that relies on radio waves to transmit data and remotely identify objects. 

Radio Frequency Identification facilitates automatic identification (Auto-ID) or the automatic identification and data collection of not just objects but also individuals and transactions without the need for manual intervention. 

At the core of RFID technology are three fundamental components – an RFID tag, an RFID reader, and an antenna

How does RFID work?

To explain how RFID works, it’s necessary to explore its main components in more detail.

As noted above, an RFID system consists of RFID antennas, an RFID scanner or a reader, and a tag or RFID chip. 

Every object that is to be tracked or identified is geared with an RFID tag – the foundation for understanding RFID technology. 

What are RFID tags?

RFID tags (also referred to as transponders or RFID chips) are small electronic devices featuring a unique identifier or Electronic Product Code (a unified format for product information encoding) and other data stored. 

The RFID chip is made of an integrated circuit (IC), also referred to as an RFID inlay or microchip, for storing unique identification data. 

The IC is connected to an antenna, which transmits and receives radio waves. 

The tag communicates wirelessly with a tag reader (sometimes referred to as an RFID scanner) by sending out data via radio frequency signals. 

There are three main types of RFID tags:

  • Passive RFID tags – passive RFID tags can also be called inductively coupled RFID tags. A passive RFID tag powers its integrated circuit and sends data by harvesting the energy from the reader’s electromagnetic field. A passive tag doesn’t come with an internal power source. 
  • Active tags – an active tag, on the other hand, relies on an internal power source, which usually comes in the form of a battery. Unlike passive tags, active tags can send signals over longer distances and stand out with higher RFID tag data transfer rates. 
  • Semi-passive RFID tags – semi-passive tags can be described as a combination of passive and active tags. They possess a small battery that can support some functions. For example, they can collect and store data but still have to rely on the RFID reader for communication. 

It’s worth noting that simple RFID tags are categorised as smart labels. 

They consist of an RFID tag attached to an adhesive label and a bar code. They’re considered versatile solutions as they apply to both RFID and barcode readers. 

Overall, tags or RFID labels create opportunities for automatic identification, tracking, and data collection via radio frequency signals. They can be created in different shapes, sizes, and designs to cater to various industries and applications. 

RFID labels are created via a specialised RFID printer designed to write data within the RFID chips inserted in the labels.

RFID Technology in card payments

Types of RFID systems 

Not every RFID system offers the same properties and characteristics. There are different types of RFID solutions based on the frequencies of the system, read ranges, and other specifications.

Three RFID frequency ranges from the Electromagnetic Spectrum are utilised for transmissions:

  • Low Frequency (LF RFID) – has a general frequency range between 30 and 330 kHz and a primary frequency from 125 to 134 kHz. This type of RFID offers a 10-centimetre read range and is usually used for animal tracking, access control, or applications that require work with metals and liquids. 
  • High Frequency (HF RFID) – has a primary frequency range of 13.56 MHz and provides a read range of 30 centimetres. HF RFID is typically used for personal ID cards, gaming chips, and NFC applications. 
  • Ultra-High Frequency (UHF RFID) – this category is split between UHF passive RFID and active RFID. The general frequency here is between 300 and 3,000 MHz, while the primary frequency ranges are 433 MHZ or from 860 to 960 MHz. While active RFID is mostly used in vehicle tracking, mining, and construction, passive RFID finds application in manufacturing, pharmaceuticals, asset tracking, and inventory tracking.

Apart from RFID frequencies, RFID systems can also be classified according to the type of RFID reader used. RFID readers play the role of the solution’s brain and are responsible for transmitting and receiving radio waves to make contact with RFID tags.

Based on their mobility, RFID readers can be:

  • Fixed readers – remain in a single location and are usually attached to walls, desks, or other stationary locations. 
  • Mobile readers – cordless handheld devices that provide greater flexibility by relying on Wi-Fi or Bluetooth for data transmissions.
  • USB readers – readers that are connected to a computer but not attached to a wall outlet. This enables them to offer more mobility when compared to a fixed RFID reader. 

Furthermore, RFID readers can be categorised based on other properties, like connectivity, available utilities, processing capabilities, and antenna ports.

How is RFID technology different from the traditional barcode system?

Earlier, we mentioned that RFID is a reliable substitute for traditional barcodes. In this section, we summarise the differences between the two solutions. 

First, RFID tags can identify items out-of-sight, while barcodes don’t have this capability. The object can be centimetres away, whereas scanning a barcode is only possible if it’s in close proximity. 

Second, RFID technology provides real-time data updates. In comparison, barcode data is read-only, making it impossible to change. 

Third, RFID tags are considered faster, requiring less than 100 milliseconds to read and collect data, while barcode systems need around half a second or more. 

What is RFID used for?

While RFID solutions were perceived as an expensive investment after their official announcement, today, they have become an affordable option for large and small companies.

Hardware costs have dramatically dropped since the 1980s based on purchasing power, increasing the reliance on RFID data.

The technology is currently used in a range of industries, where popular RFID applications include:

  • Logistics and supply chain management – tracking shipments, improving efficiency, and inventory control;
  • Healthcare – patient and employee tracking, medication management, and electronic medical record systems;
  • Transportation – electronic toll collection, vehicle tracking;
  • Manufacturing –  component tracking, process automation, and quality control;
  • Payments – tap-and-go credit card payments and other contactless payment solutions such as card machines
  • Retail – inventory tracking, supply chain visibility, and anti-theft systems;
  • Agriculture – livestock tracking, crop management, and food traceability;
  • Travel and transportation – electronic passports that record biometric information on individuals. RFID technology is also used in the UK’s transportation system, powering Oyster Cards in London.
RFID use cases - Logistics and supply chain management

Contactless payments and the RFID industry 

As a form of wireless communication, today, RFID technology is at the heart of contactless payments in the UK and worldwide.

RFID payments, in essence, operate by sending data between a credit card and a contactless reader. The data is sent as a code or token and is only valid for the specific transaction. 

It’s key to note that the transmission of the data is only possible if the card is several centimetres away from the contactless reader. This is a mandatory requirement due to the fact that credit card payments work via Near Field Communication (NFC) – a subset of RFID technology. 

NFC technology is precisely what activates and enables the payment process when waving credit cards or digital wallets from your mobile devices in front of a contactless reader. 

RFID-based contactless payments are considered a secure payment option due to RFID blocking and frequency ranges. 

RFID blocking refers to the act of preventing data from being accessed by illegitimate readers. 

In most cases, it uses aluminium foil that protects the credit card, but there are also more advanced RFID-blocking solutions, like wallets or credit card sleeves. 

However, RFID blocking is seldom necessary, as the reader and the tag have to be in very close proximity for the data to be accessed. Barriers like clothing, for instance, reduce the chances of successful tag reading and, therefore – data theft.

In contrast to chip-and-signature credit cards, RFID cards are considered much more reliable as they offer time savings, convenience, and enhanced security. When integrated with a smartphone, users can leverage functionalities like payment history, virtual card issuance, remote deactivation, and personalised PIN security settings.

The benefits of RFID technology

The use of RFID technology in so many industries serves as a confirmation of its many advantages.

Minimised labour time

The ability of RFID tags to function automatically naturally removes manual labour from the equation. 

This, on the other hand, leads to lower labour costs for the company. At the same time, it also eliminates the chances of manual errors when gathering or recording data. 

Via an automatic data collection process, businesses can rely on accurate updates at lower costs, especially given the reduced prices of RFID equipment.

Real-time visibility 

One of the most significant advantages of RFID systems is their ability to provide RFID tracking and real-time visibility on the location and status of tagged objects. 

No matter whether you’re tracking products being moved or items in a warehouse, this feature is key for inventory tracking, asset utilisation monitoring, and the overall optimization of operational processes.

Better customer experience

Due to the automatic nature of RFID solutions, processes like transactions, checkout times, and personalisation become faster and more seamless.

Customers no longer have to suffer the results of out-of-stock situations or wait for hours at checkout lines.

RFID technology offers improved security

Improved security 

In the next section, you’ll notice that we’ve placed “security” as one of the drawbacks of RFID technology.

However, RFID tags are also known to enhance security in various applications. They can be a preferred solution for access control, authentication, and anti-counterfeiting purposes

Overall, the system helps prevent unauthorised access to sensitive data, minimising risks of fraud or data tampering. 

Concerns related to RFID technologies

Although RFID creates a vast pool of opportunities, it’s also associated with several concerns that must be addressed.

The main challenges related to RFID solutions are related to security and privacy.

Security challenges 

One of the core drawbacks of RFID tags is that their data can potentially be read by all parties with a compatible reader. There are risks that this process takes place without the knowledge and consent of the user. 

While this can create minor threats in supply management or retail, in other industries such as healthcare or a military setting, this can create problems on a national security level, possibly endangering lives. 

However, putting in place a security measure in response to this challenge can help prevent these negative scenarios. 

It’s also important to note that RFID tags don’t stand out with substantial computational power. This means they lack the capabilities to support encryption, which is a must for challenge-response authentication systems. 

The only scenario where RFID tags accommodate this is passports, which use basic access control (BAC). In this case, the RFID tag has enough power to verify and authorise the reader by processing an encrypted token. 

In addition, there are risks that RFID tags are linked to individuals’ credit cards, opening new opportunities for theft and fraud. 

Moreover, the lack of sophisticated unified standards related to RFID creates additional problems.

Technical challenges

Apart from security-based concerns, RFID is also often unreliable from the perspective of technological performance.

Often, signal issues arise, such as collision and signal interference. This means that it’s possible for waves from individual readers to overlap or for factors like water or metal to impact the magnetic fields used by the RFID readers.

Implementation challenges 

Although RFID solutions are much more affordable today, they’re still challenging to set up. The process is time-consuming and requires extensive labour. 

Before the actual implementation, businesses are advised to test diverse hardware and tag system solutions to identify the most suitable application. 

Overall, the set-up process could sometimes take months, potentially disrupting normal business operations. 


To function according to expectations and to provide results at all times, RFID systems must also provide interoperability and standardisation – two additional concerns worth mentioning.

For example, RFID solutions work at different frequency levels, as explained above. This creates room for interoperability challenges when tags and readers from different providers function on incompatible frequencies. 

In addition, they can also use diverse communication protocols and standards, also hindering interoperability. 

Moreover, the methods used for encoding and storing data on RFID tags are also different, making it challenging to read and process information. 

RFID systems also differ in antenna design, tag memory, read range, power levels, and software integration options. All of these differences make interoperability a topic of concern. 


RFID technology provides a range of powerful opportunities to automate processes like inventory control, improve industries like healthcare and travel, and enjoy safe and secure contactless payments. 

As the Internet Of Things era continues evolving, RFID systems are expected to advance into even more powerful solutions. A merge between the technology and GPS systems or smart sensors paves the way for sensor data collection like temperature, movement, and location – all wirelessly transmitted.

Frequently Asked Questions

RFID stands for Radio Frequency Identification and refers to a wireless system built on the foundation of three core components – tags, readers, and antennas. Together, they create a system for wireless communication based on radio waves.

Some of the core advantages of RFID technology include eliminating manual errors, automation, enhanced efficiency, reduced labour costs, accuracy, better customer experience, and real-time visibility.

Yes, there are privacy and security concerns related to implementing RFID technology in some industries. However, potential risks can be prevented via RFID blocking and other security measures.

Both RFID technology and barcode systems and barcode systems provide automatic identification and data capture. However, use radio frequency signals to transmit data between RFID tags and readers, while barcodes use optical scanning, meaning that a direct line-of-sight between the barcode and the scanner is a must.

Related posts