That a problem of any banking institution.

Differently from Paypal though, the last time that there was a suspected fraudulent transaction in my bank account, I had a physical and factual meeting at a bank branch, rather than having my account frozen and given a stock answer.

And this is the problem for PayPal. They seem to freeze accounts for arbitrary reasons, and way more frequently than banks.

If you are a business, the ability to transfer money without getting all your funds locked up is important. I genuinely believe they are doing it for reasons other than fraud and money laundering.

PayPal has lot of third party data than most banks, but they stuck at decision making process.

"Shoot First and Ask Questions Later"

Sure, but it's not up to paypal to decide what's legal and what's not legal. Definitely not their responsibility to seize money from locked accounts. That’s plain theft.

IF they choose the path of not having humans interact with their customers, and give bot replies, then yes, such platforms will suffer from it.

If they want to invest in proper human customer service, at the cost of decreasing their margins, then maybe part of that problem will be solved.