The convenience of electronic payments is nothing short of a miracle. Though we're not quite living in a cashless society, we're getting closer all the time. I've noticed that I've grown increasingly frustrated by coins, a technology that's been with us for thousands of years. They seem somehow primitive, not to mention unwieldy.

As trousers grow skinnier, our mobile phones are following suit, as evidenced by the ultraslim iPhone 4. But the U.S. Treasury, alas, has no intention of altering the design of its coins to accommodate America's evolving fashion sense. At home my coins accumulate in jars and paper cups and drawers, perhaps to serve as raw material for some future magnetic art project. And as for bills, I only use them when absolutely necessary.

Generally speaking merchants will accept debit cards for even very small transactions. But as we all know, they don't like it. In New York City, where cab drivers are required to accept electronic payment, many drivers will plead with you to use cash, citing the onerous fees collected by the banks.

These swipe or interchange fees are the target of a new regulation proposed by Sen. Dick Durbin of Illinois, a liberal stalwart keen to pick a fight with the financial sector. Merchants have been urging Congress to take action on swipe fees for years, but it's only now, when esteem for the financial sector is at a low ebb, that there's been any hope of a tough regulatory response.

My gut instinct is to distrust sweeping regulatory efforts. When the interests of one set of businesses are pitted against another set of businesses, I'm inclined to let consumers decide who should come out ahead. Yet swipe fees pose a number of interesting puzzles.

In January Andrew Martin of The New York Times published a scathing exposé of how Visa and MasterCard squeeze retailers. The two big payment networks dominate the marketplace by making their offerings attractive to banks and credit unions that, in turn, issue debit and credit cards. Visa and MasterCard set fees for every debit card transaction, fees which vary by type of card, among other things. But the banks collect the fees and, all other things being equal, they like making more money rather than less.

Visa and MasterCard are serving their customers extremely well. The trouble is that their customers are banks--not consumers, who face higher prices as merchants pass on higher fees in the form of higher prices. Indeed Visa was, according to Martin, the first to pursue the high-fee strategy. MasterCard found that it was losing market share to Visa by continuing to offer lower fees, and so it quickly matched its rival. It's hard to see how Visa and MasterCard might break out of this very stable dynamic; last fall the Government Accountability Office issued a report describing how swipe fees have steadily increased.

One argument, raised by scholars Todd Zywicki and Geoffrey Manne, is that swipe fees are a way to pass on credit losses to merchants. Yet as financial blogger Felix Salmon of Reuters observes, merchants don't also benefit from the much larger credit profits derived from fees and interest payments enjoyed by banks.

Swipe fees could be increasing due to rising levels of fraud and identity theft. That, however, would represent a case for shifting away from signature debit and towards PIN credit. But signature debit is more profitable for card issuers, which is presumably why there hasn't been aggressive movement in this direction. In Salmon's view, rising swipe fees represent pure rents for the effective duopoly of Visa and MasterCard, and the Durbin amendment would help shift the balance of power towards merchants and consumers.

The case for regulation does seem fairly strong. To me that suggests that there's been a serious failure on the part of entrepreneurs. One wonders how the Visa-MasterCard duopoly has become so robust. In the absence of new swipe fee regulations, it's possible that merchants will band together to find a superior alternative. The trouble is that the retail sector remains fairly fragmented, and cooperation on this scale would be very difficult to achieve. The past decade has seen a number of innovative payment systems emerge, from PayPal to Square.

Yet rather than truly challenge the Visa-MasterCard duopoly, most of these new payment services have comfortably coexisted with it. As financial blogger Mike Konczal recently suggested to me, one can imagine Facebook using its Facebook Credits system to launch a truly serious challenge to the payment status quo. By promising low fees for every transaction and gaining PayPal-style access to checking accounts, Facebook could, in theory, do an end-run around Visa and MasterCard, assuming there was no regulatory response.

Unfortunately suspicions surrounding Facebook's privacy protections make this scenario highly unlikely. This looks like one course where innovation won't save us, or at least won't save us quickly enough.