Automating Payments in the Legal Sector: Why the Time for Innovation is Now
When we picture the role of law firms in class action suits, we often think of lawyers going into bat in for clients in the courtroom and holding companies at-fault to account. But their role doesn’t end with case prep and closing arguments.
Legal professionals play a critical role in the disbursement of class action payouts, once a case has been successfully fought. And the associated payment processes can be just as complicated as complex litigation: the challenges range from growing class sizes to multi-country payouts in a variety of different currencies.
Rather than the hard work wrapping up when a verdict is delivered, it’s just getting started for the successful legal team. Not only must they bear the fiduciary responsibility of managing class payouts, but this process consumes vital resources which could be better invested into billable tasks.
Fortunately, new technology is here to help. Law firms can now outsource payment processes to regulated escrow and third-party managed account providers. By automating disbursements, law firms can speed up the process while ensuring full compliance with client account rules – a win-win for busy legal teams.
Class action payouts: costly and complex
Managing payments on behalf of clients is resource intensive and results in higher costs for law firms. One of the primary reasons for this is a substantial proportion of firms’ workload is spent on tasks to ensure compliance with client account rules – as set out by the Solictor’s Regulation Authority (SRA).
The UK legal regulator is encouraging firms to better manage the risks of holding client funds because it is becoming increasingly complex and they aren’t sufficiently equipped to undertake prudent management of the accounts. For law firms which do work with traditional banks to hold the funds in a Client Account, there are long, drawn-out processes laden with paperwork to open the account; receive, hold and disburse funds in a compliant manner.
Then there’s the intricacies of data management. Law firms need to collect, verify and hold personal information from every claimant they are paying out to. Collating data represents an enormous amount of time-consuming and manual work, especially when there are compliance requirements. This is exacerbated by the fact that data breaches are one of the most common motives for group legal action, putting pressure on firms to ensure they are not causing concern for their already mistrustful claimants.
Law firms need to deal with personally identifiable information (PII) to complete the payments. This is high-risk data. To comply with regulation, such as GDPR, and mitigate the risk of compromising this information, firms must have processes in place to efficiently, safely and securely gather it. This is no easy feat, however, without the right talent, tooling and partner in place.
A key part of this data collection stage is the verification process. While painstaking, it’s vital that law firms do their due diligence and undergo sanction checking, as well as AML checks and appropriate ID verification to mitigate the risk of fraud and involvement in illegal activity.
Changing client expectations
With all the administrative and risk drawbacks, it’s easy to ignore a more obvious pitfall to manual payment processes: client dissatisfaction. Consumer expectations are changing in line with the increasingly fast pace of technology development in every walk of life.
Now, consumers expect instant, transparent, automated payments; the last thing they want, or anticipate, to do after a hard-fought legal battle is to jump through hoops to receive what they’re owed.
So why are law firms still relying on manual client account processes? The simple answer is that lawyers aren’t payment experts. While there is increasing technology adoption in the industry, payment transformation has been overlooked as a key area for driving efficiency.
But, now, with increasing complexity in managing the funds and pressures from all angles to improve their processes, law firms can no longer afford to ignore this key challenge. They need to take action.
Automate to innovate
In the legal sector, a fast-developing area is class actions, making it ripe for innovation. As a practice area of law that is still in development, with new changes to the regime still taking place in jurisdictions around the world, such as CAT in the UK and the new European Directive, law firms should be looking to build and develop their legal services in tandem with their use of technology.
Luckily, there are payment solution providers on the case. New tools are emerging that automate each stage in the payout process, reducing the time and workload required to disburse compensation funds. Not only does this reduce law firms’ associated spending but means they can increase their billable hours by spending time on higher value legal tasks.
For example, new tech platforms have been developed that allow law firms to collect and verify claimant data at scale. By leveraging the power of open banking technology, payment processors can verify claimant bank account information in the matter of seconds. This reduces the risk of money being paid to the wrong person, cuts down on manual errors and keeps firms compliant with regulatory demands.
Law firms can further support their compliance requirements by partnering with a payment solution provider which holds funds in safeguarded accounts, known as a Third-Party Managed Account by the SRA. These accounts are compliant with the SRA Accounts Rules and can result in cost savings, such as a reduction in PII premiums.
Better transparency = better able to compete
The switch from manual payment methods to automated, digital payment technologies means that law firms can execute high volumes of payments in a matter of clicks, sending funds directly to claimant bank accounts.
Another benefit of working with technology-led payments partners, then, is increased visibility over the end-to-end transaction – with data points such as verification and payment status available in real time.
Having access to a platform with live transaction data eases reporting requirements with data ready to be downloaded at any time. With internal resources unlocked, firms are empowered to take on larger cases than they would traditionally be able to handle, allowing them to remain competitive in the market.
What’s more, automation doesn’t mean losing the personal touch. Using a regulated payments partner improves the efficiency of legal disbursements and reduces the risk of human error. It also means that lawyers can better spend their time on delivering top-class legal counsel, nurturing stakeholder relationships and keeping clients happy.
In such a fiercely competitive sector, the legal world can no longer afford to overlook costly, manual and resource-intensive payment processes. The time for innovation is now.