The Government is looking to change how much Kiwi retailers pay for contactless payment services as it's revealed they pay $13,000 more each year than their Australian counterparts.

Banks generally charge service fees for contactless debit and credit card transactions, something watchdogs have been calling for change over.

Today's announcement comes after a pre-election promise from the Labour party to look into how much businesses are forced to pay for contactless payment services.

Early in the pandemic response this year, banks temporarily waived fees on contactless transactions and raised the purchase limit from $80 to $200.

Small Business Minister Stuart Nash says there is nothing to stop banks from starting to change their fee structure on card payments right now.

"Reducing this business overhead would mean businesses can hold on to more of their own money and pass on savings to consumers.

"This in turn will aid the recovery from the pandemic by putting more money back in the economy."

Nash says small businesses bear the brunt of merchant service fees because they are so reliant on debit and credit card transactions.

"New Zealand retailers pay more than other countries, costing businesses on average $13,000 more per year than their Australian counterparts," he said.

"They are at the mercy of the banks when it comes to receiving payments for goods and services."

Nash and Consumer Affairs Minister David Clark will report back to Cabinet by April 2021 with the outcome of a consultation launched today.

The consultation closes on February 19 next year and can be accessed on the MBIE website.

Following the news, ASB says it has moved to implement a substantial rebate for small-to-medium-sized business customers until the outcome of the consultation.

The rebate will be back-dated to December 1, 2020.

"Merchant services fees are a complex ecosystem involving multiple financial services parties," ASB's executive general manager business banking Tim Deane says.

"A large portion of the fee relates to interchange fees over which ASB has little control, which is why it's timely, necessary and welcome for the Government to provide overarching direction to the industry via this consultation."

Consumer NZ head of research Jessica Wilson says they welcome the news after having advocated for merchant fees to be regulated for some time.

"High fees increase the cost of doing business for merchants and result in higher prices for consumers."

"Overseas experience has shown regulation of these fees has been the only way to provide better consumer protection in this area."

Clark says the proposal to bring fees down will make it cheaper for consumers to use their money and businesses would benefit too.

"The high cost of these fees puts added financial pressure on businesses at a time when they are dealing with the economic impacts of Covid-19.

"In many cases, consumers are picking up the tab, as retailers pass on these costs through higher prices for goods and services.

"Interchange fees, which banks charge for credit and debit transactions, form a large share of merchant service fees.

"We are looking at ways of regulating these fees by introducing hard caps, targeted for different classes of retailers."

Auckland bar owner Mike Howie, from Freida Margolis in Grey Lynn, says it's disappointing the Government had to step in and take charge, instead of banks doing so themselves.

For a time, his business had to get rid of payWave because it cost him nearly 2 per cent each time someone waved their contactless payment card. He has got it back, however.

Meanwhile, Retail NZ chief executive Greg Harford praised the Government for making the move on card fees.

Harford says there has been some movement on interchange fees by card companies over the past year or so but they continue to hear from retailers the fees are too high for contactless card payments.

"The Government initiative to regulate fees is a positive step to help support retail businesses and ultimately lower costs for consumers," he said.

"Retail NZ will be closely reviewing the consultation paper released today by the Government and making a submission."

The issue of abolishing the fees for contactless payments was a hot topic earlier in the year during the pandemic response.

It was thought riding the fees would encourage more retailers to sign up for the service and ultimately would mean fewer people having to touch keypads.

It was a move the World Health Organisation backed as early as March this year, saying it was a good idea to help avoid people getting sick.

Last month, Clark ordered the Commerce Commission to conduct a market study on supermarkets to ensure Kiwis aren't paying too much for their groceries.

The investigation is similar to the one the commission did on the petrol market last year – that investigation led to a more transparent pricing strategy, which required fuel prices to be displayed on forecourt price boards.

You can view the consultation here: https://www.mbie.govt.nz/have-your-say/regulating-to-reduce-merchant-service-fees.