One thing I will say for sure. Whether or not thieving even makes it into the game. With 0 skill in thief trees everyone should have a 100% chance to successfully pickpocket anyone in mercy mode.
Point being when I am out in the world and I kill someone, and they kind of seem like a newb to me, if I kind of want to spare them I should have zero cause to question that based on "but what if they weren't really a newb and had something good"? I'm not going to put pilfering in my build because it doesn't do ME enough good to justify it. I'll just take more killshots than I otherwise would have.
Don't give us reasons to kill every newb we see if we don't really want to. Enough people will do that already because that's who they are. If they're in mercy mode we beat them. Let us loot.
I really like this idea. CoE had a similar idea, coup-de-grace vs knock unconscious offer different loot options (all gear vs bags only). If you open that loot bag and see some nice weapons/armor you have to kill to get that gear. Realism is a great point and I think it would help with player retention as well. If any version of mercy looting is implemented it needs to be a longer timer to open bag tho, not taming long but not typical looting either imo.