Hi,
I think that your checkout configuration is fine, you must have the "payment" step, else it will not redirect to Paypal.
To hide the payment method, I think that you have to do that with css properties because the field is required.
Thanks to add:
.hikashop_payment_methods{ display: none !important; }
in the frontend css file via the menu Configuration > Display > CSS
The "empty box" can't be removed, it's here in case of you need a second step.
Actually, I don't really understand why there is a second step in your checkout with that configuration...
Can you try to add things in the second step, save, remove the second step content, and save again ?
If it does nothing, thanks to try to install the latest version of HikaShop from our website over your current install.