Merchant here. We don't get a cut from "the exorbitant high fees"; we pay 2~3% for the (substantial utility of) being able to reliably take money from you in seconds.
While reviewing statements from our processor ~8 years ago, I noted that some transactions had slightly higher fees than others. Research found that those were... rewards cards. So, the processor may pass some of the cost along to the merchant.
As for the "free money" argument, research [1] suggests that humans tend to spend more when using credit / debit cards than they do when using cash.
I see I need to back that up: some merchants ask you if you would like to pay in your local curreny at POS when you are travelling abroad with a credit card. DCC, dynamic curreny conversion at Visa/Mastercard or similar.
The gains on higher fees are then split between the merchant and the processor.
Edit: Yes I think the fees are exorbitant - hence some lawsuits in the US and some EU countries with regulated, lower interchange fees.
> I see I need to back that up: some merchants ask you if you would like to pay in your local curreny at POS when you are travelling abroad with a credit card.
That's an annoying situation and (is entirely optional). But it's also a relative outlier and is definitely insufficient evidence to claim that the whole system is irreversibly corrupt.
As for the "free money" argument, research [1] suggests that humans tend to spend more when using credit / debit cards than they do when using cash.
[1] https://www.psychologytoday.com/blog/ulterior-motives/201001...