Facial recognition uses video cameras to analyse images and capture each person's unique facial features, known as a faceprint. But Choice research found 76 per cent of Australians weren't aware retailers were doing this despite there being signs up about it at the front of stores.
Bunnings temporarily turned off the technology in its stores earlier this year as it prepared to move to a new platform.
"Given an investigation is underway, we won't be using it for the time being," Bunnings managing director Mike Schneider said in a statement on Monday.
Mr Schneider said its workers faced a "big increase" in threatening incidents and facial recognition gave the retailer a chance to identify when banned customers came in, so staff could be supported before the situation escalated.
"For absolute clarity, an individual's image is only retained by the system if they are already enrolled in the database of individuals who are banned or associated with crime in our stores," he said.
"We don't use it for marketing or customer behaviour tracking, and we certainly don't use it to identify regular customers who enter our stores as Choice has suggested.
"When we have customers berate our team, pull weapons, spit, or throw punches, we ban them from our stores. But a ban isn't effective if it's hard to enforce," he said.
Kmart had also stopped using the technology for the time being, the retailer confirmed on Monday.
"We have temporarily stopped the use of this technology in our small number of trial stores, given the commencement of the OAIC investigation," a company spokesman said.
The company did not use the technology to track customer behaviour or for marketing purposes, the spokesman added.
"We believe our use of facial recognition technology for the limited purpose of preventing criminal activity such as refund fraud is appropriate and its use is subject to strict controls."
Australian Information Commissioner and Privacy Commissioner Angelene Falk has also began preliminary inquiries with Good Guys Discount Warehouses (Australia) after reports the company had paused its use of facial recognition technology.
Last year, OAIC, which is the independent national regulator for privacy, found 7-Eleven interfered with customers' privacy by collecting sensitive biometric information which was "not reasonably necessary for its functions and without adequate notice or consent".
Similar facial recognition technology is being used in New Zealand, raising concerns of privacy and unconscious bias.
