[jeffmould]

IANAL, but I believe it is not that they are not regulated heavily, it is that bank regulations specifically are much stricter than money transmitter regulations. For example, a money transmitters (as PayPal claims it is) are only supposed to transmit money from person A to person B transparently. However, PayPal routinely will hold funds or refund funds to a buyer without giving the seller notice or fair warning. Under banking regulations there would be more transparency to the seller and these types of incidents would slow or cease to exist is my understanding. If you have a $1000 in your bank account and walk into the bank to withdraw $500 the bank has to honor your request as long as the funds are available. With PayPal it can be a guessing game of whether the funds are available and there is no one there to answer why they are not available when they make the claim. Again, IANAL but that is my general understanding of the difference.

EDITED TO ADD: Also, as I understand it if someone hacks your bank account the bank has insurance and your funds are almost always refunded sometimes the same day. With PayPal if your account is hacked and you have a balance there you risk losing your money with PayPal not refunding any of it. PayPal most likely would tell you it is your fault.