This is why I find myself more-frequently finding $5.00 minimums at local merchants, sometimes with a $0.50 or $1.00 surcharge for purchases under $5.00: It, on average, covers their ass.
A local restaurant gives a (I forget) 5 or 10-percent discount for cash (vs credit), not even four blocks from my house.
Of course, these small merchants (coffee shops, carryouts, hardware stores, the one locally-owned liquor store) aren't in the business of selling big-ticket items: In my town, that's the realm of the singular audio salon, service companies (think HVAC, though HVAC folks like to establish their own credit lines for their customers -- which is fine with me) and big-box stores (Wal-Mart, Lowes, Best Buy, etc).
And I can only speak for the audio salon, because I do casual contract (1099) work with them on a a fairly regular basis and have been good friends with the owner for decades, but: He doesn't care. If there were a horror story involving credit card fraud, he'd tell me all about it in a late-night telephone rant, but that hasn't happened. What I do know is that he gets sadfaced when someone wants to pay with a credit card, and then tries to give them a better deal if they'll pay cash -- right now (or tomorrow or next week, even, depending on the sale).
He prefers cash because he has his money right now, instead of at the first of the month or whatever, and doesn't have to pay a percentage of the bill to $banking-system. Perhaps he is lucky that he has no grandiose fraud stories to report, though there isn't much that he sells that might be easily- and untraceably-fenced and criminals aren't necessarily stupid.
That said, for the ridiculous percentages that Visa and Mastercard charge merchants for their services, they should have plenty of cash to cover the fraud that is enabled through their own insecure processes instead of the merchant. That doesn't mean that they should cover it.
In the grand scheme of things, perhaps it doesn't matter: Someone must pay for fraud, and that someone must, ultimately, be the consumer. If better practices are put in-place, it is ultimately be the consumer who pays for the development and deployment of them (even if Visa writes the check). If fraud is instead rampant, then it is ultimately the consumer who pays for that too (which, under current rules, means that the merchant might adjust their sticker prices to adjust for fraud).
Because at the end of the day, it is me, the consumer (or the fraudulent consumer) who is (alleged to be) providing funds.
Currently, the impetus is on the merchant to verify that the transaction is valid, and the merchant (and ultimately the consumer) pays. If it shifted to Visa/MC, the consumer would also pay. If it shifted to the requisite banks who actually hold the money, the consumer would pay as well.
Arguing about whether the merchant or the bank or the processor covers the loss is an exercise in semantics: In all cases, money does not appear from thin air (unless you are the Federal Reserve Bank, which is a different discussion), and someone has to pay for fraud, and that someone must always ultimately be the consumer.
(Where the blame lays beyond that? As a consumer, I don't think it makes any difference. I'll be paying for it no matter what.)