The Government is introducing regulations to reduce the fees banks charge businesses when customers use credit or debit cards.
The Commerce Commission will also be given powers to regulate and monitor the retail payments system. There will also be a disclosure and reporting requirement to enable this.
In a statement, Commerce and Consumer Affairs Minister David Clark said a Retail Payments Systems Bill would be introduced later this year.
"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.
"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."
Interchange fees - transaction fees that a shop owner must pay whenever a customer pays with a credit/debit card - will be capped at 0.8 percent for credit card transactions, at 0.6 percent for online debit card transactions.
Contactless debit card interchange fees will stay at their current levels of 0.2 per cent or less, and swiped and inserted debit, will stay at 0 percent.
Clark said reducing the merchant service fees would save businesses $74 million a year.
"Currently unregulated, New Zealand's merchant service fees are set much higher than they are in Australia and add significant overhead for retailers, who often pass those costs onto consumers through higher prices," he said.
"Smaller retailers, and those who rely on credit or online sales will particularly benefit from these savings."
The Government aims to seek final policy decisions on reducing the fees in mid-2021, with a view for the law to come into effect next year.
Last year, Visa and Mastercard agreed to reduce the interchange fees.
Demand for contactless payments had also increased since the COVID-19 pandemic and banks waived fees for contactless payments for a time, however they have since resumed.