This system is completely convoluted, with the incentives all over the place between merchant, bank, CC processor, consumer. It's the kind of thing that will never change until you go to a different country or start an alternative payment system that is 10x better, because no one has the power or will to displace the existing infrastructure.

Consumers don't care because they don't (directly) pay the bill for these benefits, and only see the kickback rewards as a positive.

Banks don't care, actually they like it, because rewards help them attract customers who don't care who pays.

Merchants can't put up too big a fight because they can't leave unless they're big enough to stomach the loss in revenue, or can make customers shift payment method (like Costco, say).

CC processors love it because regardless, they get payment traffic and commissions.

Whereas in other countries, this system would be crazy.