That's a good question, and here's what my customers have said. My company's market is digital products at around $10-100. Not saying everything here is justified, but the fact that a customer thinks these things should be justification for you to cater to them. (Customer-is-always-right principle.)
- Credit cards are hard to obtain in my country, but PayPal is easy enough.
- The last time I had a credit card, I spent it all at once! So all I have is PayPal now.
- I have USD in my PayPal account, but I don't think my credit card works with USD.
- PayPal is safer because it offers some protections against fraud.
- I don't trust to give a company my credit card number, but I trust that logging into PayPal at a paypal.com URL is fine.
- I have extra money in my PayPal account that I can spend, but I shouldn't spend from my checking account.
- PayPal is easy to sign up for. I don't have to walk into a bank or make phone calls.
I suspect some people use it as an "off the books" account in family/spousal relationships. They'd have a fit if the credit card had a $300 charge, but they don't even know you had $300 in PayPal balance from selling stuff on eBay and can go to town.
People literally think that when paying with PayPal, merchants don't get to see any personal data, even though in reality PP dumps all payer's details onto a merchant, including physical address, even if there's no need for that.
Better protection is a valid point though. It's dead easy for payers to dispute a payment and merchants are basically forced to settle with the customers, because fighting disputes is very hard. On the plus side, meritless disputes on PayPal are surprisngly rare.
I say this as a person who hates PayPal.
Are there analyses available on what type of products/services have this problem, and what customer base primarily wants PayPal?
I refuse to do business with PayPal, due to the many many horror stories of them holding money hostage, issues with charitable donations, utterly opaque dispute resolution, etc. (I've had issues with them myself, as well, trying to make donations.) I'd love to know alternatives, not just to the features of PayPal (for which there are many), but for serving the customer base of PayPal.