Source: http://lifehacker.com/5495378/paypal-20-bumps-money-between-iphones
Of course, if all of you have PayPal accounts, you don't all need iPhones to "bump" your money—you can still send money the traditional way by loading up the app and entering an email address, or drawing from a recent contact. But with two iPhones running PayPal, it's easier to set a dollar amount, move them into proximity, then confirm that the "bump" means you're transferring that cash to the sucke—er, person who picked up the tab.
Beyond that proximity feature, PayPal 2.0 also adds a means of splitting up a restaurant check or other group purchases and "billing" other PayPal users for the amounts due. Bill reminders, money withdrawals, and other features you'd expect from the online payment system are still in place, too.
PayPal 2.0 is a free download for iPhones and iPod touch models running at least the 3.0 firmware. If you've got a killer use for PayPal on iPhones that we didn't cover, do tell us in the comments.