Volatility risk is inherent to every single currency. The swiss franc just had a 30% change in value. Bitcoin's volatility is going down every year, look at the charts, and it makes sense, too. Deeper markets are harder to move. There's nothing particularly unique about bitcoin that makes it volatile except its youth and nascent ecosystem. Over time its predictable supply curve makes it less volatile than most of the world's currencies for most of the world's population that don't live in stable OECD economies with decent currencies. There are numerous countries with 10-20% inflation and wild swings.
Is bitcoin any better? Well again, its volatility is going down every year. But already you can go to Bitreserve and lock in the price to a dollar or euro or gold or yen or whatever value. So if you're in Kenya, instead of 10% inflation, you just keep your money according to the dollar rate if you want, enabled by bitcoin.
Merchant fee? Bitpay offers 0% processing for all. Their most recent merchant taking bitcoin through Bitpay (at 0% fees) was Microsoft.
Transactions are instant, confirmation time can be mitigated as it's a function of risk. Cup of coffee needs no confirmation time. Amazon needs no confirmation time. (if the customer double spends it, you simply cancel 15 minutes later and the item supposed to ship the next day won't arrive.) Xbox Live needs no confirmation time. (account gets shut down after 10 minutes of trying to set up a multiplayer game of Halo, xbox gets fingerprinted and it and the ip gets blacklisted for fraud. Remember only the owner of bitcoin can double spend through careful effort, meaning you can be near certain fraud was intentional.) In short, virtually all of online retail has no real confirmation issues long term. And software solutions are in progress, there was one posted just last week, can't find it atm.
Escrow: it's just an insurance service, no reason there won't be a company offering it. In fact escrow with timelocks and multi-sig already exist. It's a bit of a long discussion but look into Mike Hearn's presentations and articles on this, the short story is that with bitcoin you can get much better and fairer and more specific expert escrow services to fit your particular niche. Paypal and Amazon's systems aren't adequate and allow too much fraud and require too many costs.
Whether the customer or the merchant pays isn't relevant, the customer ALWAYS pays, it's not like the merchant will pay extra fees from his money-tree in his backyard. The customer pays. So if you have an expensive escrow system that screws over merchants and lets criminals chargeback lots of transactions stealing products essentially without paying and the merchant has to pay for expensive processes to get their product/money back, or let it slide, then the company will raise prices to make up for the losses or go out of business. Customers pay.
Same with creditcard theft. Oh you don't have to pay if your CC gets stolen and someone spends $1k of your money? You still pay. Mastercard isn't giving you $1k. They're either taking it from the merchant (see above), or they're paying you money out of revenues. Surprise, in both cases, you're the source of revenue. Banking isn't cheap, there are enough articles on this online just check 'm out. A checking account averages about $200 a year? Credit is hugely overpriced? Paying 15-20% a year on credit when if I put money in a savings account I can barely get 0.5%? That's obviously because there's no peer-to-peer lending, if there was you'd both pay/get 10% and be better off by 10%. But people accept crazy rates on creditcards, why? Because the regular use is free or insured or promoted. All of those things you think are 'free' or 'cheap' are only such because you're getting screwed in other areas of your financial services.
In short, creditcards are a 1950s invention that are hugely unsecure: people walk around with plastic cards with their freaking entire password (doubles as an account number) printed on it. And everytime you want to pay, you show your password. It's insane. And then if something goes wrong, you charge it back. All of this costs money, there's a ton of theft and fraud with this system and the customer ends up paying for it. You're deluding yourself if you think that's cheap, it's like getting a free razor and being oblivious to the fact you're paying a shit ton on the blades.
