PayPal is a mediator between people/businesses. It’s pretty safe for transactions since you don’t actually ever give anyone your banking info like account number or something like that. Especially when dealing with new/small businesses, people are often uncomfortable typing in their card info.
The FDIC thing means that if you personally or PayPal itself gets hacked, your balance isn’t insured. With your bank account, balances up to 50,000 (at least that’s where I live) and insured by the government. That’s why you shouldn’t keep too much money on your PayPal.
The relationship between PayPal and banks is non-existent far as I know. From your bank’s perspective, PayPal is just a company you’re paying (when you add to your balance). They have nothing to do with the transaction once the money leaves the bank account
It’s just an easy way to pay online without risking your card info.
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