It would be more accurate to frame payment for order flow as: "We get private institutions to offer you better than public prices; so you'll routinely buy each share a few cents lower, and sell a few cents higher than you would at a broker that does not offer this feature."

The institution can do so not because it's a giant scam, but because they have confidence that a seller on RH is not about to sell a billion more of the same name, depressing the price. They know that it's going to be a small and essentially random trade, which is easier to risk manage.