McKinsey’s report estimates that law firms operating on a global scale experience a drop of 3.2% on average due to inefficient payment systems and expensive conversion rates which many reproach in light of the fact that operating profits in this industry are extremely competitive. This means that while the law firms are reticent to offer competitive rates for internal cross border payments, they do seek reasonable rates to be charged for their multi regulatory work.
Extra Charges in Traditional Banks When Providing Legal Services
Instead, an international law firm located in London that specializes in corporate registration for European and Asian markets still uses the more traditional approach where they need to keep multiple foreign currency checking accounts while using multiple banks and doing manual payment reconciliations. This might have worked a few decades ago, but in today’s age where fiber optics are prevalent does seem a bit outdated.
“The magnitude of making cross-border payments has remained ever since a nuisance” points out George Arakelov who has witnessed this across various continents. “A number of firms have almost branched out into operating a quasi-banking business, which takes away a lot of resources from their basic operations.”
The statistics speak for themselves and are by no means optimistic. A 2023 report by Deloitte on law firms indicated that every firm spends an average of 12 hours a week on payment processes and some bigger firms have whole departments dedicated to international transactions. For corporation service providers who need to make a lot of registration payments and pay a lot of government fees in different jurisdictions, the problem is even worse.
Regulatory Compliance: A Blessing And A Curse At The Same Time
The legal industry faces more problems regarding payment services mainly due to heavy regulations, “Every legal firm faces a paradox” Guldana Ablanos explains “They have to have a great compliance with the laws of different countries while facilitating payments for numerous jurisdictions. The traditional banking sector’s ability to enhance one’s transaction ability is grossly hindered as they usually do not ensure the requisite levels of transparency and documentation.”
That is a regulatory burden that costs real money:
- 15% of cross-border payments are similar to not quite cross-border payments as they are half paid and semi-completed with extensive documentation or clarifications.
- A 3 – 5 business day turn-around for cross-border transactions and sales.
- Up to four percent of aggregate transaction costs considering the hidden fees or the margin exchange rates.
A Shift in the Payment Model for Lawyers
Legal payment platforms such as these are seeking to fill a void by providing lawyers with a specialized platform that contains compliance elements, automated reconciliation, and even real time currency exchange. Essentially modernizing an industry that still uses fax machines from time to time.
Anthony Bridges stresses the financial aspect: “When it comes to using advanced payment technologies in the legal industry, we have analyzed that there is a shift in payment processing cost from 40 to 60 percent. However, the most important part is the competitive advantages – the amount of work that has to go into servicing the customers improves and it is possible to grow into new regions without the cumbersome overhead of having traditional banks in the region.
Case Study: From Paper Oriented Operations to Efficiency
Let us analyze the case of a European provider of incorporation services (name withheld for privacy reasons) that provides company registration services in 30 countries. Their core payment processing system was:
- Dealing with 12 bank institutions
- Having multi currency accounts in eight currencies
- Hiring 3 payment reconciliation clerks on a full time basis
The implementation of a modern payment platform enabled them to realise:
- Ends up taking 33% less time to process the payments
- Reduced the number of inquiries related to payments by 89%
- Savings of up to 45 percent have been achieved on international transfers
- Entry into ten new markets without the need to set up more banking relationships
The Future of Legal Service Payments
The change in payment systems in legal practices concerns not just the reduction of costs but a greater shift in the framework of the practice. Dzhamel Mimoun is of the view that those firms which will manage to treat payments as an opportunity will be the ones that will succeed.”
“We’re witnessing an evolution of organizations that now consider payment capabilities as a core competitive differentiator because they are offering clients a much better experience with respect to multi-jurisdictions which was not possible through the banks.”
As legal services appeared to be more international and more remote-first, utilizing new generation payment systems is not simply a matter of preference for a law firm today, but rather a matter of strategic requirement. As they persistently employ a business model which believes that today’s clients buy not only legal expertise and reasonable normalized profit, it is not unusual for them to remind their clients of theimportance of efficient payment systems in this era.
The figures tell a very definite story: the companies and organizations who decided to takeover new websites and new modern payment system report on average 40 % increase in client engagement, 50% reduction in client engagement workload and also 30% improvement in management of cash flow. In an industry with so much time pressure these efficiency savings are seen immediately in the profit margins.
For the legal and incorporation firms that are considering investment into some new systems and technologies in order to stay competitive there is no ambiguity, it is clear it is the payment systems that meet legal services requirements that they will need to have (such as Collect&Pay). The question is no longer if the evolution of payment operations will happen but instead surviving in the current reality how fast firms will get up to pace with the changes.