The actual cost of handling card payments is very, very low these days, but merchants are stuck paying the higher price, because there's effectively no competition in the space. To avoid having obscene profits, the cc companies give back a lot of the extra money to the consumers in the form of cashbacks and rewards, and then consumers stupidly feel grateful for being fleeced.

In an ideal world, merchants would pay only the actual cost for handling card payments, only pay for the tech itself, and the fraud risk. Naturally, such a pricing would be a fixed per-transaction-fee, because the actual cost is the same for each transaction.

In the same ideal world, the credit risk of credit cards have to be managed through the interest rate and credit worthiness management. It's completely outrageous that credit card processing fees should in any way, shape or form cover the risk side or the fraud side of the business. That's not the merchant's problem.

That would be fair. That wouldn't be gameable. Some countries did exactly this: https://en.wikipedia.org/wiki/Dankort