How about fraud protection (on both ends)? I'm old enough to remember people being afraid to use credit cards online. It would be great if things like Dwolla were more ubiquitous, but until then...
If you look through that, you'll see that the typical fees assessed by Visa and Mastercard are on the order of 25 basis points (a quarter of a percent). The rest of that 2-3% is going to price transaction risk (in both directions). No matter what you do in technology, if you're not talking about a better risk management system, the most you're going to be able to reduce interchange is about a quarter of a percent. It may not be obvious if you don't understand finances, but Apple is actually targeting the risk issue.
At some point, someone noticed that they were accepting all of this risk money per transaction, and that they could make a tidy profit if they took only the low risk users, so that they could make profit on the risk model. Well, how do you attract the low risk users? You offer them a cut of the transaction.
Over time, as you pull more and more low risk users into the rewards pool [edit for clarity: there are only high risk users in the default pool], the cost of doing business as usual goes up, and you have to start raising your risk charges. Well, higher risk charges means more money available for rewards... and so on and so forth. Durbin should help to restore balance, but it will take some time.
When customers issue a chargeback, they almost always side with the customer, leaving with the merchant with very little recourse. As a merchant, you just lose the money.
Exactly. There's a reason I prefer using a credit card over directly depositing cash in a company's bank account.
It's all too easy to forget that fraudulent sellers are just as much of a problem as fraudulent buyers.