One of the hottest sectors in technology is seeking to change the way people pay for things.

Cash is no longer king. Checks are on a downward spiral. And people are already predicting the demise of plastic, the advent of which ushered in the last spurt of innovation in payment processing. In its stead, digital and mobile payments are being heralded as the next big thing.

Many of the highest-profile payment technologies come from Silicon Valley – PayPal, Square and Google Wallet come to mind – but Portland boasts a cluster of companies that plays a starring role in the evolution of how people and businesses interact with money.

Portland’s cluster is made up of nearly a dozen companies that fit under the umbrella term of payment innovation or financial technology – “fintech” in Silicon Valley jargon – but most operate in their own niche and don’t compete with one another. How and why this cluster came to be located in the Portland area is a mix of serendipity, happenstance with a dash of entrepreneurial spirit. But their growing ranks (combined they employ roughly 1,100 people in the Portland area) speaks to the city’s rising reputation as an innovation hub.

“To me it feels – the people I work with, the energy – very similar to my experience when I was in Silicon Valley, my experience when I was in San Francisco and the experience I had when I was in Boston,” said Ben Kaplan, new CEO of CashStar, a digital gift card company. “And that applies also to the talent of the people as well.”

Kaplan arrived in Portland about nine months ago to take the reins of CashStar, a 100-person, growth-oriented, venture capital-backed pioneer in the digital gift card space. Others in the area’s payment processing cluster range in size from the 600-employee WEX Inc., an established company that got its start providing gas credit cards to companies with vehicle fleets, to BlueTarp Financial, which employs roughly 90 people and provides credit and payment services to building supply companies, and PowerPay, which was founded in 2003 and grew by providing online payment processing for e-commerce pioneers. Lesser known are young startups, like the new payment project from David Stone, CashStar’s co-founder and original CEO, and companies that fly under the radar, like Bottomline Technologies, which employs more than 80 people at its South Portland-based Paymode-X operation.

In economic development terms, a cluster is a group of companies and related organizations that leverage a competitive advantage through their mutual proximity, cross-pollination of ideas and development of a workforce with specialized skills. State and federal policy makers often devise laws to encourage cluster development, but there have been no formal efforts in Maine to grow this sector, which has grown organically. And people are taking notice.

“Once there’s some momentum, it’s a self-fulfilling future where five years from now I could imagine CashStar veterans starting their own startups,” Kaplan said. “I think as there are more and more companies that are successful, it will branch out.”

IN THE BEGINNING

How did Portland come to be home to a cluster of companies in the payment processing space? Looking back, four companies were early players in Portland’s payment sector – including one considered an early competitor of PayPal – who laid that foundation for growth.

Those companies were WEX, which was founded in 1983; Inovant, a software development company that Visa opened in Portland in 2000, and shut down in 2007; First Merchants Bancard Services, which provided merchant payment processing services (think: credit card readers); and Clareon Corp., a venture capital-backed company started in Portland in early 2000 that held great promise. It was Clareon that an Associated Press reporter in October 2000 cited as an early rival to PayPal, but it eventually went bankrupt. (For more on the original four, see the box at right.)

Many employees working in Portland’s payment sector today can trace their roots back to one of those four companies. For example, Jim Raftice, the current CEO of PowerPay, was once an employee of First Merchants Bancard, as was Jamie Nonni, the founder of Nationwide Payment Solutions, which employs 66 people in Scarborough.

Or take Matt Cordes. He was in his early 20s when he got a job at Inovant, Visa’s now-defunct development shop in Portland.

It was his second job out of college and when he took the job he didn’t have any particular interest in payment technology. But experience from that job led him into a career that has involved several of the area’s innovative payment companies.

After Visa closed Inovant in 2007 and outsourced the jobs to India, Cordes formed his own consulting company. He has worked as a developer-for-hire for WEX, Nationwide Payment Solutions and CashStar.

Cordes is an example of the homegrown talent that clusters can nurture who go on to fuel other startups in the same space, allowing for cross-pollination and innovation.

PowerPay has grown from 25 to 175 employees in the past 10 years and has been successful at hiring those people locally.

“As we grew, because there’s WEX, because there’s the likes of CashStar, because there’s us and other offshoots like BlueTarp, we tended to get people with a very good understanding of what we do,” said Raftice.

CashStar has grown from roughly 50 to 100 employees in the past three years. Most of that talent was hired locally, with the rest being easily attracted to Portland because of the quality of life, according to Kaplan.

“We’ve had huge success of hiring,” Kaplan said. “I think there’s more and more people who are recognizing that quality of life, that having the outdoors, having the water, having such wonderful restaurants, having such a progressive city – all of those things, in concert with a set of companies, that are growing, hiring and having success, is ultimately what will grow Portland and make it the magnet it needs to be to support these companies.”

Many of CashStar’s employees are veterans of Portland’s other payment companies, especially WEX. Several also once worked for Inovant.

As the oldest and largest of the companies in the space, it’s likely that WEX has contributed the most to this talent pool by both developing local talent and also acting as a magnet to bring people with experience to the area. Rather than raising fears of poaching, Steve Crowley, WEX’s chief information officer, said that’s to be expected in a healthy ecosystem.

“As we’ve grown, (our employees have) also grown with the company, and in some cases left to join startups,” Crowley said. “It’s the ecosystem in the payment space we’re a part of, and we’re proud of both our employees and also those who are alumni of WEX.”

Portland’s cluster has also acted as a magnet.

David Joseph in 2000 co-founded a startup in New Jersey called Davo Technologies, which has developed a payment technology platform to simplify how merchants pay sales tax to states.

“Our motto is we want to do for sales tax what ADP did for payroll,” said Joseph, who moved to Maine in 2003 while he built his company.

The four-person company is still technically based in New Jersey, but three of the employees live and work in Maine, Joseph said. He would like to grow the company here, and has applied to the Maine Technology Institute for funds to do so.

Joseph said he could build his company anywhere and chose Maine for the quality of life. But he recognizes Portland’s cluster of payment companies and hopes he can draw on that talent.

“There’s potential,” he says. “I don’t think we’ll be able to compete (on salary) immediately, but certainly down the line we’ll be able to be part of that cluster.”

CORRIDOR RATHER THAN CLUSTER?

People often think of Portland and its payment cluster as standing alone, but that’s not the case, according to Stone, the former CEO of CashStar who has started a company called Payment207.

Just two hours south is Boston, which has its own booming startup scene, including a big PayPal operation and several other companies in the payment space. Instead of a Portland cluster, people should be discussing a Boston-Portland corridor, said Stone, who moderated a panel on Portland’s payment innovation sector during Maine Startup and Create Week in June.

“Boston and Maine are the second largest payment hub in the country after California,” Stone said. “I don’t think people know that.”

The synergies between Portland and Boston are not imaginary. Both Kaplan at CashStar and Scott Simpson, CEO of BlueTarp Financial, live in the Boston area and commute to Portland for their jobs.

“It speaks to the quality of the opportunities up here,” said Kaplan, who estimates that as many as 10 CashStar employees commute from the Boston area at least a few times a week.

But Kaplan hesitates to call it a full-fledged innovation corridor.

“I think it is real, but nascent,” Kaplan said. “To have a corridor you need critical mass at both ends. I think Portland is still growing and in the process of building up that critical mass.”

Over the years, the Maine Technology Institute has invested in most of the local processing companies, but the organization has no formal program to support the cluster, according to Bob Martin, MTI’s CEO.

MTI has commissioned a report on Maine’s emerging clusters. It’s not yet released, but Martin said one interesting discovery is that while overall employment in Maine’s information technology industry has declined, more specialized IT sectors have emerged and are growing. Payments technology is one of those growing clusters, said Martin, who added that the report could be used to determine how MTI can help support the cluster more effectively.

Clusters are powerful, Martin said, because they have the ability to attract investors from outside the state.

“Where you have a cohort of ventures heavily focused in a particular technology area, that’s a good thing,” Martin said. “The benefit of that is venture capitalists and equity groups don’t just invest in one technology. Where they see a particular technology emerging – payment software – and see the vibrancy of the entrepreneurial activity, that leads them to look at other ventures and technologies, as well, and they begin to see the place as a producer of those kind of companies.”

Portland hasn’t seen its last payment innovation startup. Stone, a former American Express executive who co-founded CashStar in 2008, is working on a new company, though he would only reveal that it’s an e-commerce platform with mobile and payment elements and that it’s focused on “a fast growing emerging market” with a strong relevance to Maine.

“Startups run deep in me, and building the next great company in Maine is what I want to do,” Stone said. “I hope for this one to take some of the successful learnings from CashStar, but also importantly it will be different.”