It's actually part of the verification process which is a legal requirement.
Financial institutions such as banks, credit card issues and 3rd party transaction processors such as PayPal are required by law to verify the identity of the person behind any and all Accounts into which money is collected. This stems from the USA Patriot Act, Title III, Anti-money laundering to prevent terrorism where as institutions put into place reasonable steps to identify beneficial owners of bank accounts and those who are authorized to use or route funds through payable-through accounts.
PayPal takes advantage of the fact that you had to prove to the bank you are who you say you are. Therefore, by linking and confirming your bank account, the background work has already been done and PayPal has now met the legal requirements to protect themselves.
PayPal's FAQs state: To Verify your PayPal account, just link your bank account to your PayPal account or be approved for PayPal Smart Connect, PayPal Credit, the PayPal Extras MasterCard®, or the eBay MasterCard®.
From experience, we’ve learned that in order to use PayPal without limits, it best to link and confirm a bank account (checking account) plus link and confirm a credit card (not the prepaid type) and register your SSN # . (Note, when you link and confirm a credit card, this acts as additional proof of ID, a backup funding source and allows you to do instant transfers verses sending eChecks or in the UK eCheques.)
