This is the single most fundamental misunderstanding in the bitcoin camp.

First of all it is only in some countries like the U.S. where fees are in the 2-3% range. Others have regulated that fee away already. In fact, the U.S. just recently regulated debit card interchange down to 0.05% + 21 cents.[1]

Second -- and this is really important -- most of that fee goes back to the consumer in the form of reward programs. That's primarily what they are funding: 1-2% cash back programs, free travel, etc. Not the "100,000 people and 1970s mainframe computers" that Marc describes.

So, the opportunity to lower fees (1) doesn't exist in many places, and (2) where it exists it consists of taking value away from consumers.

So no rational consumer will voluntarily transition over to a lower-benefit instrument. If U.S. merchants really wanted to experiment with the future of "lower fees", just try accepting debit cards only (not credit cards). See how consumer like it. Great for merchants, not so much for customers who want their cashback programs.

Even where lower fees have been forced through regulations (Australia), it did not result in a general 2-3% reduction in consumer prices. Guess what, merchants kept that margin.[2] This is why big merchants like Walmart are resisting Apple Pay in a futile effort to push their own CurrentC, a new instrument that bypasses card networks and deducts directly from your checking account. But guess what: it takes value away from consumers. Exactly the same problem with bitcoin for consumer payments.

This is why it will have an extremely tough time replacing credit cards -- and that's before we even get to the matter of consumer protections. You need a trusted intermediary to be able to enforce chargebacks, which protect consumers against ripoffs. You can't do it with insurance alone; you have to be able to reverse transactions. So by the time you add intermediaries back in, Bitcoin is just another centralized card network with an exotic protocol for moving money. It's the next Discover card, sans card.

There may be more specific niches where bitcoin is useful. But this notion that bitcoin will save us all 3% on purchases is just plain uninformed. And unfortunately it's at the foundation of so much of the investment in this area.

[1] http://www.heartlandpaymentsystems.com/Durbin/What-is-the-du...

[2] https://www.competitionpolicyinternational.com/assets/Hot-Tu...

"Another predictable result is the absence of evidence that consumer prices have fallen as a result of lower merchant discounts. This is not surprising because the cost savings are too small to be measurable with any degree of confidence. However, based on the economics literature on pass- through effects, we believe that it is highly unlikely that consumers have received any significant benefit over the period of time considered given the likely sticky prices and high concentration in the Australian retail sector."