This is the magic if market dynamics. If a business fraudulently takes advantage of this they will not build up a customer base, paypal will shut down their account, and money will be refunded. PayPal is taking most of the risk so that businesses can be flexible and provide a better experience.

It's not a bug, it's the way things should work with more services. PayPal's product may be outdated in many ways, but this is not one of them.