Question

What distinguishes PayPal from a bank , and how does this lead to problems with following banking regulations?

Answer 1

When someone creates a PayPal account, they get a Digital Wallet (sometimes called an E-Wallet) account. Wallets are created to make it simpler for their owners to transact online. Most Wallets, including PayPal, can be linked to a credit card and/or bank account to allow the Wallet owner to add funds to their wallet from their bank account, or withdraw funds to their bank account.

A bank account typically allows the owner of that account to pay bills through the national bill payment system, allows seamless transfers between checking (current) accounts and interest-earning savings accounts, allows banking services such a bank-checks (certified checks) to be created against the account, allows pre-authorized debit transactions to be set up to pay for things like utilities and rent, and gives the owner access to cash withdrawals and deposits from a wide variety of ATMs globally. These features are not available to most PayPal (or other wallet) account holders.

Of course, PayPal allows account holders to withdraw funds to their linked bank account. This process takes 3-5 business (or longer in some countries). If the business or person being paid is going to withdraw their PayPal balance to their bank account, it’s worth considering if transferring directly to their bank account is more ideal.

According to the Financial Services Roundtable, the banking industry does not pay hackers to alert them to security flaws, for example. PayPal, however, is the Holy Grail for hackers. Just because the company hasn't been hacked doesn't mean that it won't be. Hackers are constantly trying to break into PayPal's servers