The financial services industry has been revolutionised due to the impact of digital technology. “Fintech” has disrupted existing business models and led to the emergence of innovative business models and products which have ultimately benefited the consumer in terms of new services or providing existing products in a cheaper and more efficient manner.

Companies like Transferwise and Stripe have reduced the cost and speed of overseas money transfers while “challenger” banks such as Monzo and Starling have used fintech as the forefront of their offerings. This has caused traditional banking players to adapt their business practices to remain competitive and now fintech has become the new market standard.

However, has digital technology had the same impact on the provision of legal services? “Lawtech” appears to be an industry on the rise but what has been the rate of adoption by law firms? Although law firms appear to be willing to adopt and work with fintech providers – e.g. Linklaters’ partnership with Eigen to launch Nakhoda, a A.I. data analysis and extraction tool or Allen & Overy’s tech innovation space for start-ups, “Fuse” – what is the level of adoption within law firms across the profession and, more crucially, as part of the service provided to clients? Is it all hype? These are the answers that the Law Society attempt to answer in their recently published research paper “Lawtech Adoption Research – February 2019” (Click here).

The conclusion is that lawtech has not yet reached the same levels of adoption or disruption as the Fintech sector. The technology is less “disruptive” and more focussed on creating efficiencies and automating existing practices rather than delivering new or innovative ways of providing legal services e.g. automating documentation review or creating transparency into existing billing practices. Adoption of lawtech from law firms is low across the board and, even in the larger firms who have publicly adopted lawtech, it is not being routinely used in the provision of client services.

This is due to a number of barriers to adoption including (1) The traditional law firm partnership structure: The cost of any adoption of lawtech would typically be from the partnership profit pool which can create a “high bar to adoption”. Given the consensus decision making model in most law firm partnerships and the disparate motivations and attitudes of partners, it can be very difficult task to gain the support of the partnership to a wholesale adoption of lawtech; and (2) The billable hour model: This can prove to be a powerful barrier to adoption given the focus on billing targets and charging time; any time spent on lawtech is not revenue generating.

The traditional partnership and billable hour model seem like significant barriers to adoption of lawtech by law firms. Developments in technology will advance and it is foreseeable that lawtech solutions will soon start to deliver innovative ways of providing legal services. But until law firms genuinely become innovative in how they are run and provide services to their clients, then the wholesale adoption of lawtech will not take off.

However, there are drivers for adoption as the report notes and we see two of these as key: Client and Competitive pressure.

The most significant driver for change will be client pressure. Particularly in the financial services space, there is significant pressure from in-house legal teams on law firms to achieve greater efficiencies via a greater use of technology and for a demand on transparency on costs. Technological adoption and a greater transparency on costs are also becoming key factors for GC’s in determining which law firms sit on their panel. In-house lawyers we speak to and those referenced in the report consistently are frustrated with how law firms provide services and their charging models. Law firms that willingly embrace and provide technological solutions to their clients will be the ones that start to win more client business.

In terms of competitive pressure, there has been the launch of new market entrants with a greater variety of operating models that have put pressure on traditional law firms and business models. Some of these firms have taken market share from law firms due to them being able to line up people, process and technology with a clear focus on lower cost and lower margin activity. This has particularly been seen in the rise of alternative legal services providers – such as Hanbury Partners – who can provide lawyers on demand to meet fluctuating and changing resourcing needs of clients. Competitive pressure really is a sub-set of client pressure. Any change will be driven by the need of clients and the law firm of the future will need to be run along drastically different business models in order to meet client demand. True innovation is not adoption of technology but innovation in how services are provided to meet client needs. Otherwise clients will become frustrated and look for alternative providers elsewhere.

As the report states “The winners of the future are likely to be those who best respond to the changing needs of clients. Clients have long been frustrated with the cost of legal service delivery and some may respond by taking more work back in.

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