It isn't an outright scam but is most certainly has, or at least had, incredibly unfair business practices. Their cheap reason is because they get scammed a lot but even Visa or Mastercard who probably have the most fraud don't have the same (lack of) ethics PP does.
I still own a paypal account but have not used it for years after a particular incident where I was labelled a scammer on forums because my account was frozen just as I was paying for a service. It took weeks to resolve, and each new login or activity required me to send countless documents and information plus cost me so much in phone bills trying to deal with customer service, I just gave up.
What unfair business practices are you referring to? I've never seen them take any action that wasn't warranted. People try to use Paypal to scam all the time, and PP has had to develop measures to protect themselves. But anyone using the service within the terms of service is generally not have problems. Anyone attempting to abuse Visa or Mastercard in the same way would face the same repercussions. Visa and Mastercard also have a lot more leverage with consumers, in that they can negatively affect your credit score, whereas Paypal, which doesn't deal with credit, cannot and has to be more proactive to head off fraud.
I mentioned one example in my case: I wanted to pay for a creative design service it was a very simple job and it was delivered to me. I had a VERIFIED account, linked to my personal bank account, no limits and all that nonsense I had to send so many documents. I click send payment and account locked. They could never give a reason why other than it being standard practice for security and so on. Fine, never mind, apology accepted but I asked them to at least contact the seller to inform him that I wasn't scamming him. They couldn't do that. I had no other way to pay the person as he only wanted paypal. My reputation on a freelancing site was tarnished because of that one incident.
The issue was NOT resolved quickly enough, and I recall the most difficult document was they wanted a MORE detailed invoice FROM the seller, who was already so pissed at me and wouldn't provide anything more. Of course he never sent it so the issue remained unresolved. The account was eventually unrestricted after 180 days (or rather, the issue resolved itself by expiring after 180 days I guess) but you can guess I had given up by then.
The craziest thing for me was it was just below 100 dollars or so.
I think my feeling here is that PP operates very well in N America and Europe and possibly Singapore but when it was starting out in Malaysia, where I am from, it was extremely problematic and continues to be for me today. I called in many times and emailed about the login issue (I travel and each login from a different country seems to lock the account). I understand security issues but to:
1. lock you out requiring account access and re-verification which will take several days
2. Requiring multiple documents MULTIPLE times after verifying countless times
3. >24 hours response and in some cases not responding. I have an email as recent as October which was never responded to when yet again I was locked out, had no way to call support because they insisted I call my home country (on roaming, yes) and they only provided an email support as an alternative.
These are to me, unfair practices, given that I had zero restrictions, zero problems, zero verification needed to fund my Paypal account. So they happily took my funds with no complicated process, but to send it out? Hell or high water.