By Anurag Bana and Harriet Watson
Digital payment technologies are rapidly changing the format of traditionally burdensome transaction methods and processes. In order to stay relevant with their clients, law firms will need to adapt and innovate in all areas of their service, including how they conduct their payments.
The digital payment sector is well-established and has the potential to transform the payment models in the legal profession. While financial innovation has the capacity to deliver efficient and effective benefits, there remain some serious regulatory and ethical considerations for the legal profession before they can be widely adopted. Technical competency is needed for law firms of any size, and also for independent legal practitioners to ensure that they are able to embrace financial innovations while maintaining the integrity and high-standards of their practice.
New digital finance products and services are emerging at an exponential pace and fundamentally changing business models and practice across professions. Though the legal profession has not adopted these innovations at pace, there are examples of firms and individuals experimenting with financial innovation in the provision of their services. This gradual shift to digital payments is coupled with a rise in web platforms where freelance lawyers are able to provide services entirely online.
“Digital payments”is a broad term. Many law firms are now accepting cryptocurrencies such US law firm Quinn Emanuel Urquhart & Sullivan, MahWengKwai & Associates in Malaysia and Chamberlains Law Firm in Sydney. Cryptocurrencies, such as Bitcoin, are unique due to their decentralised structure, whereby no intermediary bank is used to facilitate transactions. Despite an increasing number of law firms accepting cryptocurrencies, there is limited uptake by clients due to its volatile market. Nevertheless, cryptocurrencies are here to stay and should be on the radar of the legal profession.
Currently, online payments are a more popular form of digital payments. Specific tools designed for the legal profession claim to offer secure and efficient payment platforms for lawyers to handle their expenses. In the US, there is already an ecosystem of digital payment services specifically designed for the needs of lawyers such as LexActum. More recently, Canada-based legal tech provider Clio created a single new platform for collecting legal fees, which also facilitates a full range of management tasks, including automatically recording payments. Meanwhile, more mainstream online payment services, including eWallets such as PayPal, are increasingly widespread among small firms and individual lawyers. These platforms mainly trade in fiat currencies involving bank accounts, though PayPal does facilitate crypto transactions.
Finally, digital payments can be facilitated through other applications that have developed payment features, such as WhatsApp. With an already well-established user base, these applications have the potential to revolutionise the operations of small-scale law firms and individual lawyers, especially in remote areas.
In India, lawyers can send an instruction for payment via a WhatsApp message to the recipient which, via an intermediary bank, triggers an instant real-time transaction from the customer’s bank to that of the lawyer. This payment is channelled through the National Payments Corporation of India (NPCI). From the user’s perspective, the payment is made quickly and easily but, in the background, it is realistic that this method of payment will involve four intermediary banks, the NPCI and WhatsApp. Despite its apparent ease for users, the risk of relying on so many actors, and exchanging such sensitive information multiple times per transaction, greatly increases the risk of each payment and should be treated with caution.
But first, the benefits. As society trends towards a cashless model, law firms will be obliged to stay relevant by accepting online payments. Digital payments are effective and efficient time-savers for both clients and lawyers. Research suggests that bills are paid more reliably and rapidly through digital payment mechanisms, with instant confirmation of receipt of funds and a reduced administrative burden for both sides. In addition, digital payments mean that law firms are released from the burden of handling first-hand the bank details of their clients and associated data protection compliance measures. In accepting digital payments, law firms and practitioners stand to benefit from fast and efficient services coupled with a stronger image as an innovative and forward-thinking professional practice.
But it is also important to consider the risks. Firstly, cyber threats are ongoing and persistent with digital technologies. As these technologies become increasingly integral to society and business, cybersecurity is an increasingly important priority for business leadership.
The IBA “Cybersecurity Guidelines for Law Firms during the Covid-19 Crisis”11 provide concise and practical suggestions for law firms to enhance their policies and practices to minimise the cyber risks of their activities. Secondly, data protection is essential for all digital payment platforms. Customers are trusting secondary and third parties with very sensitive information which must be held in confidence and appropriately safeguarded against cyber-attacks. Every link in the digital payment chain must maintain rigorous data protection compliance.
Applications that facilitate payments with many links involved, such as the WhatsApp payments, inherently increase the risk to data protection. Data compliance issues with WhatsApp have been raised in the Supreme Court of India. This demonstrates the critical importance of data protection in digital payments. Closely related to these considerations are concerns over liability in case of a data breach or a cyber security incident.
A recent internal IBA overview report of professional indemnity insurance, which covers inadequacies of the legal service, shows that the requirements for cover vary widely across jurisdictions. Without professional indemnity insurance cover, lawyers increase their exposure to risks resulting from complications and failures in digital legal payments methods.
In England and Wales, a recent Solicitor’s Regulation Authority report outlines some of the key issues involved for law firms adopting legal technology and identifies the importance of professional indemnity insurance policies. Digital payments platforms have the potential to blur the boundaries of liability which require concise and coherent arrangements.
These risks apply in a wide range of sectors. One unique aspect of the legal profession is the client-lawyer/attorney privilege arrangement, which preserves the confidentiality of some aspects of communications between the lawyer and his client. This is a client privilege, not a lawyer’s privilege, and therefore it is the lawyer’s fiduciary duty to preserve this requirement.
Information regarding payments that comes under the lawyer-client privilege umbrella has been subject to debate. It is possible that information that is shared in the process of making a payment may be covered by lawyer-client privilege. In France, for example, lawyer-client professional privilege is broad and covers the payment of fees. However, in Japan, while there is no limitation on the types of documents to come under the lawyer-client privilege, the information has to be deemed to be of a nature that any reasonable person would expect to be kept confidential.
This demonstrates how the lawyer-client privilege is often highly subjective and open to interpretation with regard to payments. Furthermore, in the context of digital payments, lawyers are trusting, sometime multiple, third parties with information that is potentially covered by lawyer-client privilege, and this adds an additional layer of risk to digital payments.
In a highly innovative and dynamic sector, especially in cases such as WhatsApp pay, it is realistic that digital payment platforms may not be secure enough to protect the integrity of the lawyer-client privilege.
Innovation inevitably entails risk, and not only for the producer. Lawyers should account for this when embracing digital payments for their legal services. While large commercial law firms can embrace digital payments through developing and employing bespoke platforms, small firms and individual practitioners will turn to market-available options. There is a lack of guidance on using these platforms safely and securely in a legal setting. The American Bar Association has recognised the popularity of payment applications but is yet to issue guidance for its jurisdiction.
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A level of technological competence and understanding is desirable for lawyers to assess the risks of using digital payment platforms, including cryptocurrencies. This requirement could help lawyers understand and assess the inherent risk of using financial innovation tools.
Innovation will drive on, and guidance will be essential for the legal profession to keep pace with wider commerce, while upholding lawyer-client privilege and maintaining trust.
—Anurag Bana is Senior Legal Advisor, Legal Policy & Research Unit, International Bar Association, and Harriet Watson is Project Coordinator, Legal Policy & Research Unit, International Bar Association