The Government is to clamp down on the fees banks charge businesses when people pay by credit or debit cards.

Eftpos is free for merchants but its use has been dropping particularly with the Covid-19 pandemic as more people shopped online or used contactless credit or debit cards.

The major banks temporarily cut contactless debit card fees to small business customers in late March amid pressure from technology entrepreneurs worried the high cost was putting merchants off using it.

Eftpos machines with 'no Paywave' signs could be a thing of the past. Photo / File

But by June they began to wind that back. The last major bank pulled its offer in September.

Commerce minister David Clark said New Zealand's merchant service fees were unregulated and much higher than they were in Australia adding a significant overhead for retailers who often passed on the cost to consumers through higher prices.

"Reducing the merchant service fees that New Zealand businesses are being charged is a priority for this Government, and critical to the recovery of the economy."

A major component of the merchant fee is the interchange fee - the fee paid between banks for the acceptance of the card transaction.

Clark said it would cap the interchange fee at 0.8 per cent for credit card payments - in line with Australia - and the interchange fee for online debit card transactions at 0.6 per cent.

Contactless debit card interchange fees will stay at 0.2 per cent or less and swiped and inserted debit card fees would stay at zero.

Banks and companies like Visa and Mastercard were already under pressure to lower contactless payment fees even before Covid as fees in New Zealand have typically been higher than other countries where they have been regulated.

Research by Retail New Zealand in 2018 found the average merchant fee in New Zealand was 1.6 per cent of the value of a transaction for credit cards and 1.2 per cent for contactless debit cards.

The Government estimates the changes will save businesses $74 million a year.

"Smaller retailers, and those who rely on credit or online sales will particularly benefit from these savings," Clark said.

A bill will be introduced called the Retail Payments System Bill that would require deductions in interchange fees as soon as possible and enable direct intervention by the Commerce Commission to regulate participants in the retail payment system.

It would also introduce a disclosure and reporting requirement to enable the Commerce Commission to monitor the retail payments system.

The Government aims to make final policy decisions on reducing merchant fees mid-year with the aim of the full regulatory regime coming into force next year.