It seems that PayPal is adding a second factor authentication scheme based on SMS text messages. These schemes work by send a unique code to your pre-registered cell phone, and you have to echo back that code to login. This kind of two-factor authentication (traditional password and unique SMS code) is a great idea, especially for services like PayPal that are frequent fraud targets.
PayPal offers SMS security key for mobile users
PayPal’s chief information security officer, Michael Barrett, believes this form of two-factor authentication, in which you need both something you know (your account password), and something you have (in this case, your mobile phone) is the next logical step for the company as it tries desperately to protect users against online security threats.