Hello Motobiman,
Thanks for using Apple Support Communities! I see you have some questions about using PayPal as your payment method and I'd like to help.
Looking at the article for Payment methods that you can use with your Apple ID, there is a footnote about using PayPal.
*You might be asked to verify your account with the payment method provider.
I'd suggest checking with PayPal to verify if there is anything which needs to be done to allow this payment method to be used.
In the meantime, because you are the family organizer for your Family Sharing group, it's required to have a payment method. This is why you aren't able to delete PayPal without another method already in place.
Family purchases and payments
To add another payment method: Change, add, or remove Apple ID payment methods
Take care!