2% if you use Apple Pay, and 1% if you use the physical card. That's not a very competitive offering.
It is a self-propelling idea that would be almost impossible to kill because doing so would make your credit card offering less competitive.
It is also self-propelling from the consumer end. If you don't take advantage of these rewards, you're paying for everyone else's rewards by buying goods and services at a higher price. Some merchants flat out deny certain credit cards such as AMEX.
Though I guess lower fraud rate due to chip-and-pin requirement also plays a part.
Both the EU and China have introduced legislation that caps merchant fees. This helped with cashless adoption, but also killed off many of the bonus points/miles/cashback offerings.