I just purchased 1500 bits ($15 to streamer) for $19.95 -- a $4.95 markup. This made me think about the amount of bit donations vs. PayPal donations I've seen over the years, and the fees associated with PayPal are much more attractive.

Bits however are very interactive and entertaining. The novelty of getting a bit badge and having your cheer posted at the top of the chat is likely a reason why people choose to pay the premium. That being said, for every person that buys bits, the other person donates on PayPal because its cheaper. If Twitch wants to maximize bit revenue, they need to lower the margin from ~20% to as low as 5-6%. For comparison, PayPal charges 3.6%. I would happily pay double the premium for the novelty and enjoyment of bits over paypal if it wasn't so ridiculously marked up.