what is the incentive?

I'd say the novelty of it is enough of an incentive for such an idea. Also, bumping two phones together carries lower psychological cost than handing someone your hard-earned cash and I would expect people to have less qualms about lending/returning/trading small sums of money this way.

Yeah, while this seems to have some weird geeky appeal, it's still way harder than just pulling out a dollar and handing it to someone.

I've been in many scenarios (a lan party comes to mind) where there were multiple people who had either large bills or no cash at all, and yet we needed to buy things like beer or pizza.

This makes it very easy for people to transact small amounts of money (ideally free through paypal) using this technology. People may forget their cash, but they never forget their phone. Neat.

Brian