I had been using PayPal with iTunes Store for a long time before it suddenly stopped working and I received several email messages from Apple saying there was a problem with my payment method. I started up iTunes on my Mac and checked my account. My payment method was set to PayPal and there was an error message saying there was a problem with my PayPal account. I logged into PayPal. There was no problem with my account. In fact, Apple as well as other merchants had successfully charged it within the previous two weeks.
I went back to iTunes and tried reestablishing PayPal as my payment method. I tried multiple times with Firefox as my default browser and also with Safari. Each time, the browser displayed a PayPal login window, I logged in, and then PayPal displayed the following error message: "This recipient requires that you have a valid funding source from United States in order to complete this transaction." Well, I am a US citizen, have always lived in the US, have always used the USA iTunes Store, have only ever had credit cards issued by American companies, etc. There is no reason why funding source should ever be an issue.
I went back and forth between Apple and PayPal support at least six times, with each company blaming the other. I got a "definitive" ruling from PayPal that the error was absolutely positively being generated by Apple. Armed with that, I finally got Apple support to forward the problem to engineering. Ten days later I got back a report saying that absolutely positively the problem is on the PayPal side. So then I called PayPal again and finally got a customer service agent, James, who agreed to forward the problem to PayPal engineering only after consulting with a "senior" agent who said they had seen this problem before. So finally we know the problem really does lie with PayPal. James told me it would probably be 2-3 days before the problem was resolved.
Five days later I tried again to set up PayPal as my payment method on iTunes. I got the same error message: "This recipient requires that you have a valid funding source from United States in order to complete this transaction." I called PayPal again and asked to speak with a "senior" customer service agent. The agent, Levi, was amazingly unhelpful, saying that if PayPal does not work with iTunes Store, I should use a credit card. Well, I really want to use PayPal, although I am certainly beginning to wonder why. I have sent email to PayPal requesting confirmation that engineering is addressing the issue.
Thanks so much for reading this whole sad story. Does anyone have any idea what I can try next to resolve this problem?
