Yes, they make money from converting the currency, same like how VISA/MasterCard makes money for the currency conversion.
With paypal, you have an option to let PayPal convert the currency or your bank (MasterCard/VISA).
I'm not sure if South Africa banks pass on this fee to the client.
I also realized it. Did 2 transactions the other day, one with paypal conversion and one without. Worked out about the same rate. Paypal used to be a lot cheaper.
Investec is cheaper than paypal. But - if you get refunded, you get refunded on the current exchange rate, so could go either way. Afaik, if you get refunded with paypal doing the conversion, they use the same rate as the day you purchased.