If several hundred people send one cent to your traditional bank account, you have a few dollars. The bank won't tell you to forget about that money because it came in as cents.
That's misleading. With PayPal for example, if you sell goods or services you have to accept a 3.4% + 20p fee for it, which makes all payments below 20p useless and all transactions below about £1/$1 impractical to take, or "dust".
That's why I said traditional bank account. Paypal has always been rather greedy imho so it was a good target for "fee-free" Bitcoin.
What about:
1. Increase blocksize so that more transactions can be included into a block to lower fees. Why isn't that done?
There's a lot of argument about that. Some people argue that it would increase the cost of running full nodes too much, eventually leading to centralisation and thus leaving nodes too public and/or prone to attack. I don't particularly agree with this for small increases, but I can see the argument that it's a "slippery slope" of sorts.
It will grow nevertheless constantly, unless someone comes up with a smart idea to reduce size. On the other hand, storage space gets cheaper. It will just get more annoying to copy and/or do a fresh restart.
I don't think the fees are higher than PayPal's when it comes to overseas transfers + currency exchange. I'm an EU citizen and remember receiving some cash from a friend in the USA and it included normal overseas transfer + conversion to Euro, and it costed me about 20. Me, because my friend didn't even know it's going to consume so much, so he sent a full sum and when I got it it, the fees were deducted from the sent amount and I got much less than I had expected.
Bitcoin is much cheaper and you immediately know how much you're sending. Also the fees are paid by the sender, not deducted from the money being sent.
Just went to blockchain.info and took a look at the latest blocks and picked the USD values of some random transactions:
Amount Fee Ratio Transaction-ID
1,24 0,17 13,7% 7637e4cb225fbe5d549fb544e18ffcbd51267a46e3451eb7dafef25e3b3c60c4
22,04 3,07 13,9% 331f9bab79acf9489a6834a0f2b0c9c41f6f6153607d3ff75c5647c2a0839199
28,69 7,11 24,8% c22624bb677b630a5635777860dee67bfa2bc321e64d784e416b1d898a934e6d
2,19 2,92 133,3% 8c9a3646533c9141581c9ca15d82c94d2a1ad6b6b1b2ce981c99793c9138bc74
14,55 2,68 18,4% 1c0fdecbc5de6a2725d1b1ee4c9c6c5c58bd332962187bb6893cb825514d5f6b
Currency exchange aside, it's hard to explain those fees to average Joe; and he won't consider those amounts as dust either. With this, it won't be interesting for end-user and merchant adoption. Bitcoin will turn into a trading currency for people with bigger funds. Transactions need to stay below eg Paypal's fees to stay competitive. Milking users now will bring everything downhill.
Right now Bitcoin is far more expensive (and slower) on average than PayPal (with free non-purchase transfers in the same currency). But the biggest selling point was/is decentralisation and freedom from censorship - you're in full control of your own funds and can send them to whoever you want anywhere in the world.
In the long run even Bitcoin will centralize. People want convenience sadly, that's why webbased wallets are successful. They can easily drop fees for "inhouse" transactions and brake traceability in the blockchain.