[marssaxman]

As a paypal user, the problem you describe is not my problem. Paypal is useful for settling up among friends by transferring small amounts of money around with minimal friction, enabling us to coordinate group activities without needing to waste a bunch of time meeting up physically and collecting cash. I believe that Paypal simply eats the transaction cost for such interactions in order to keep us involved with their service, which seems fair. Additionally, Paypal is useful for making occasional purchases from small vendors I don't trust to maintain effective information security. The more places I enter my billing credentials, the more likely they are to get leaked and exploited, and then I have a hassle to deal with. I'd prefer to avoid that. I use paypal instead so that managing these risks is their problem. They charge the vendor a percentage, which is again reasonable because paypal's service is making it more likely that I will be comfortable doing business with the vendor in the first place. If paypal were not an option, a good fraction of the time I would just choose not to make the purchase or to buy locally; taking a 5% cut on the transaction is not unreasonable if the transaction would not otherwise be happening and all the other parties are getting their needs met.