Ed Boal, Head of Legal at Shieldpay, explores the current state of automation in legal services and why focus is key for firms looking to embrace new technology. The article discusses the trade-off between the sector wanting to digitally transform while being realistic about the speed of innovation and common barriers to adoption.
Once again, AI is dominating international headlines. This time, it’s due to a closed-door meeting this month between tech leaders and US senators to discuss the technology’s regulation.
AI and automation isn’t just for the likes of Big Tech. We’re seeing predictive and automated technologies transform almost every sector and the legal industry is no exception. In fact, recent research from HBR Consulting found that 60% of law departments had implemented a legal data analytics tool last year and more than 1 in 4 indicated they were using AI for at least a single use case.
However, adoption isn’t without its challenges. Reticence remains among some and there’s also the danger of ‘transformation fatigue’ slowing real progress. If law firms want to reap the many benefits of automation – including revolutionising their payment processes – these challenges need to be carefully considered and thoughtfully addressed.
An area of great opportunity
Often seen as conservative, the legal industry has been gradually warming up to the idea of automation and technology.
While some pioneering firms have been quick to embrace automation tools, others remain cautious about disrupting their established workflows. As we navigate this landscape, it’s clear that certain areas of legal services are ripe for innovation.
One area is contract management. The process of drafting, reviewing, and managing contracts has traditionally been time-consuming and prone to human errors. Automation can alleviate these pain points by streamlining the entire lifecycle of contracts, from creation to renewal, thereby enhancing efficiency and reducing risks.
Another promising domain is legal research. Thanks to advancements in natural language processing and machine learning, legal professionals can now leverage AI-powered research tools that analyse vast volumes of legal data to provide accurate insights and case precedents swiftly.
But, while progress is undoubtedly being made, the legal sector still lags other sectors when it comes to innovation.
What’s getting in the way of progress?
This isn’t always down to a resistance to change. Often, it’s a result of firms spreading their resources too thinly across numerous technology initiatives.
Attempting to tackle everything at once can result in ‘transformation fatigue’, where the benefits of individual innovations get diluted – leading to frustration and slower progress.
Before legal firms embark on digital transformation projects, a critical first step is introspection. Recognising and acknowledging areas where legacy processes and manual tasks still hold sway is paramount to optimising the impact of automation.
For many firms, archaic practices continue to consume valuable time and resources, diverting attention from higher value, billable tasks. One often-overlooked area is payments.
Legal firms play a critical role in complex transactions, from M&A and real estate deals to litigation and arbitration payments. The associated admin and processes represent a drain of firms’ time and resources. Spanning everything from collating stakeholder payment details and verifying payee identity to ensuring compliance with Know Your Customer (KYC) and Anti Money Laundering (AML) regulation, this adds unnecessary stress for lawyers – who would rather dedicate their time and expertise to their clients’ legal needs.
The repercussions of such time-consuming financial processes reverberate throughout the entire organisation. Administrative burden weighs heavily on the team, affecting productivity and ultimately, the bottom line: recent research from Shieldpay, surveying the UK’s Top 100 law firms, found that almost 1 in 3 (32%) say KYC collection and verification checks take 4-9 working days.
At the same time, firms are exposed to significant financial risk which can make handling client funds a costly endeavour. Not only are they penalised with fines if found to be in breach of stringent client account rules but firms are also subject to hefty premiums for Professional Indemnity (PI) insurance. No wonder 73% of all legal professionals and 90% of junior law professionals are concerned about the risks and time costs associated with holding client funds.
Revolutionising payment transactions
In short, manual payment processes are more than just an inconvenience for modern law firms. They can damage relationships with clients – who have come to expect a fast, painless and automated payout experience in a digital world – and impede revenue generation by tying up top talent in an endless cycle of paperwork and (unbillable) admin.
So how can firms take the pain out of legal payments?
Fortunately, new payment technologies have emerged as a formidable ally. Third-party payment providers offering solutions for law firms, such as escrow and paying agent services for specific transactional deals, or more embedded payment solutions such as managed accounts (TPMAs) – i.e. outsourced client account functions – offer secure and instant transactions, while prioritising transparency and automation.
TPMAs operate as an escrow payment service in which the third-party – a licensed external payments partner – receives and disburses funds on behalf of a firm and their client(s).
With advanced encryption ensuring data security, working with a regulated payment partner means legal professionals and their clients can engage in financial transactions with peace of mind – while law firms benefit from improved operational efficiency.
And the advantages don’t stop there. Enhanced transparency builds a sense of confidence and trust, while the elimination of manual data entry and repetitive tasks allows legal professionals to devote more time to legal services and fostering stronger relationships with their clients.
AI and automation has much to offer the legal sector. But its adoption must be carefully planned in order to avoid transformation fatigue that risks stalling progress altogether. With typically shallower pockets than Big Tech giants, it’s important for law firms to focus their efforts on specific areas that could benefit from automation, rather than rush to overhaul their entire way of working, all at once. This controlled phase-out is the key to avoiding adoption frustration, seeing a real impact on profits and productivity and setting firms up for real, lasting change.
----------------------------------------------------------------------This article was first published in Finance Derivative, you can find it here: https://www.financederivative.com/how-can-law-firms-embrace-automation-and-revolutionise-their-payments/