It's my understanding that in the case of DCC that Visa and MC would lose out on the 1% conversion fee they charge the issuer, so there's a slight disadvantage for Visa/MC when customers use cards overseas and the transaction doesn't use the Visa/MC rate. However, since Visa/MC rates are typically competitive compared to the interbank rate, I don't consider a 1% conversion fee particularly usurious if the banks decide to pass it on to the customer.

You are absolutely correct however that almost all issuers have switched to FTFs from the language of currency conversion fees. This allows them to charge a fee regardless of whether or not they ever deal with a currency conversion. It doesn't matter whether or not the customer accepts DCC; the FTF happens either way. This is a nuance that is lost on almost all of the articles that I've seen on of topic of whether or not to accept DCC. There are those who say, "Never accept DCC in any case." That's the correct mentality. However, I cringe when I read, "Well, it depends on whose fee is lower." This article is a great example. The author says:

Wrong. Wrong. Wrong. Wrong. Wrong. By definition, a FTF will be levied on any foreign transactions, regardless of the currency denomination of the transaction. So even in the person faced with this choice follows this advice exactly and "correctly" chooses DCC because the fee is only 2% vs. the issuer's 3%, the customer will have just paid a 5% surcharge for that transaction. Never ever accept DCC, especially if your card has a FTF. The choice is abundantly clear if your card charges a FTF.

As I said in my post earlier, I think the payment processors have the most to gain from DCC because they don't shoulder the responsibility of a chargeback in the case of a customer feeling cheated. That's on the merchant. I think the payment processor also gets the bulk of any profits derived from the DCC markup. I think it will be difficult to get rid of DCC if you look at the breakdown of the winners and losers with DCC:

• Merchant: WINNER (mostly) - The merchant will get to keep some of the profits from the DCC markup but could lose out whenever there is a chargeback because of forced DCC. Since chargebacks are rare, the merchant mostly wins.
• Payment Processor: BIG WINNER - The payment processors are the ones we need to shame here. They enable DCC or sometimes force it upon an unsuspecting merchant. They extoll the benefits of being able to provide customers with a value-added service blah blah blah... However, in the case of a chargeback the processor still wins. They throw the hot potato to the merchant and say, "Well, no... you had to give the customer the choice, and you didn't so it's your problem. Catch!"
• Visa/MC: NEUTRAL - In the case of DCC, they're not doing any conversions, so the 1% fee isn't applied. While there might be some small profit within the 1%, the rates are usually competitive, so it's not that much higher. They stand to lose as more and more customers get fed up with the DCC games/FTFs and either pay cash or use AmEx/Discover where possible. It is clear that they have an incentive to make sure at the very least that DCC is disclosed and offered as a choice. In an ideal setting they'd want to prohibit the practice because we all know how some merchants are dishonest when presenting the "choice".
• Card Issuer: WINNER (slightly) - If the issuer charges a FTF, the issuer will get an extra 1% of the transaction amount since the transaction comes across as the cardholder's currency. The card issuer stands to lose if the issuer gets complaints about customer's unwillingly getting hit with DCC and decides to issue a credit rather than a full chargeback. There are likely costs behind the scenes to file a chargeback as well. But just like in the case of the merchant, very few cardholders will actually file a chargeback related to DCC, so the issuers don't yet have an incentive to ask Visa/MC to prevent DCC.
• Customer: BIG LOSER - The bottom line is when you accept DCC you pay more for the same goods and services you would have received had you not accepted DCC. a 3-5% surcharge isn't worth it just to know exactly how much you paid in your home currency.