When PayPal started, it was financed through a Palm ‘beaming’ money to another Palm. Now, you can transfer funds via acct or ‘Bump’ your iPhone with another to transfer funds.
In the most recent free version of PayPal for the iPhone is a new ‘beta’ feature that lets you search for local companies that will let you pay via PayPal. No need to carry your money or credit cards to these stores.
This service is still in ‘beta’ so don’t expect to see a lot of spots on the list yet. From the Categories list the PayPal app shows, they are expecting a lot of businesses to jump on board.