By Mike Coates, Founder and Director of Commercial Expert
In recent years, we’ve seen the commercial mortgage industry undergo a major digital transformation through the introduction of Open Banking, AI, Challenger Banks, Fintech and more. However, the legal industry continues to lag behind when it comes to digital transformation. For the industry to continue on the path it is, it’s time for the legal industry to catch up.
With many businesses being hit hard by the covid-19 pandemic, in particular small-to-medium enterprises (SMEs), record numbers have resorted to borrowing. Ernst & Young forecasts that by the end of 2021, UK firms will have borrowed over £60bn throughout the pandemic. In fact, net lending to SMEs in 2020 was 30 times higher than in the previous yeari. The Government, the Bank of England, banks and lenders have all played crucial roles in supporting businesses, through lowering interest rates and allowing borrowers to defer loan repayment start dates until 2024.
But, this recent frenzy of commercial borrowing combined with enforced social distancing operating procedures by law firms has exacerbated the delays in commercial finance where property transactions are prevalent. These transactions have historically been lengthy and are a source of frustration for all parties involved. The process is slow, manual, with multiple stakeholders involved, and it’s not as seamless and integrated as it could be.
Demands are changing rapidly, particularly post-pandemic, where people expect highly accessible online services. The majority of solicitors don’t have online systems where you can track progress, particularly when you are dealing with small solicitor firms.
Let’s use an example of a property investor looking to expand his portfolio. Once the buyer has found a property, from a legal perspective, this is only the start of the transaction. The next steps are to undertake searches, negotiate documents and draft reports, which collectively take time.
Delays can occur before the search process can begin. For example, if the property doesn’t have a site plan provided by the seller’s solicitor or landlord, this will hold things up. It can take a long time to receive replies from other solicitors involved. In addition, solicitors require money on account of the searches, therefore, any delay in payment will contribute to delays.
The local authority search takes the longest, potentially taking between 3 and 8 weeks (location dependent) to complete. The local authority carries out the search, and unfortunately not all local authorities have yet fully digitised their records.
Drafting a “heads of terms” takes time and this requires all parties to agree on the finer points before solicitors can pull a detailed one together.
The benefits of technology
We have witnessed how the adoption of digital technology has revolutionised other sectors. For example, the use of automated valuation models (AVMs), a software-based pricing model used in the real estate market by estate agents, brokers and mortgage lenders for property valuation. AVMs offer higher levels of accuracy, exhaustive coverage as well as saving time.
It’s time that the legal industry underwent a radical digital transformation.
A cloud-based communication and document storage system could undoubtedly improve efficiency and security for solicitors. Instead of issuing huge packs in the post, solicitors could upload documents electronically for all necessary parties to access instantly. Digital signatures could be embraced, saving time on a postal to-and-fro.
Face-to-face meetings could be replaced by solicitors providing legal advice virtually. In addition, adopting ‘live chat’ or AI-based chatbots can allow general enquiries and questions to be dealt with more quickly and effectively, freeing up a solicitor’s time to undertake more knowledge-intensive work, such as working on the heads of terms.
Ultimately, I see that efficiency will be the biggest catalyst for digitalisation. Embracing digital solutions is being advocated by the Law Society, and many anticipate that it will be key to recovery from the impacts of Covid-19 for many firms. Research by McKinsey & Co. found that when law firms have performed a digital transformation, they are “23-times more likely to acquire customers, 6% more likely to retain customers, and 19-times more likely to be profitable.”ii
Whilst there is clearly a cost associated with adopting new digital systems, with these figures in mind, the question is can you afford not to invest in a digital transformation of your business?