As of writing this article there are still 12 days left of 2021 so assuming there isn’t some sort of ground-breaking change in the industry, I think it is safe to begin our wrap up of Lawtech in 2021 and how it has changed. The team here Verify 365 and the wider Lawtech 365 group have had the privilege of working in the legal technology sphere for some time now, but 2021 has felt different to other years. Over the past decade we have seen new lawtech start-ups spring up but only in the last five years have we seen the wheat separate from the chaff, meaning that only now are we seeing ‘good’ technology providers such as ID verification software solution provides, or document automation providers, while those ‘less good’ providers fall.
But as legal technology providers rise and fall there are certain patterns, we’re seeing in the industry which we believe has defined the lawtech sector in 2021.
Regulators prepare for a changing legal industry
It’s no secret that the legal industry is behind others in terms of technological adoption. Outdated ID verification software and traditional anti-money laundering checks are still very common, which has led to many law firms being fined for their lack of AML compliance. There are still plenty of firms across the country that still only use paper files rather than the “paper light” system most firm operate under with their case management system. It is because of this backwardness that regulators like the SRA and institutes like HM Land Registry are pushing for technology adoption amongst the 10,000 odd law firms that make up the legal industry in England and Wales. Make no mistake, although Scotland and Northern Ireland have their own regulators, they too are pushing for more technology to be used in law firms.
But why is there a push? Well simply put, the risks associated to fraud, money-laundering, cyber-attacks, etc are all primarily carried out using technology and tactics the police struggle to get to grips with let alone law firms. So, the only way to mitigate these risks are through tech. To this end lawtech companies have not disappointed, our very own Verify 365 client on-boarding system is compliant with most regulations in relation to anti-money laundering checks, most case management systems follow the rules set-out by the SRA in terms of conflict checking, document storage and client management and contract automation software is quickly catching up with rules.
As regulators push harder for law firms to take up technology, the harder technology providers will push for their products to be compliant and in 2021 this has been very prominent.
Putting aside the SRA and equivalent regulators and institutions, we have seen an uptake of technology generally amongst law firms in 2021. Large law firms have always been rather good at using technology due to their size and complexity and therefore conduct rigorous anti-money laundering checks, but what is unique about 2021 is the fact that so many small to medium sized law firms have taken up technology. They want to become more AML compliant through investing in innovative ID verification software.
Case management systems are old hat now, most have them and those that don’t are the exception to the rule rather than the rule. But the use of ID verification software and electronic AML solutions like Verify 365 and even online consultation solutions like Lawyer 365, all have seen an uptake by sole practitioners, small law firms and medium law firms.
But why is this? Well, despite how backwards the industry is, lawyers aren’t blind or naive in any way. They know technology and the use of lawtech is an inevitability because that is the future. There will be a point in the sector where enough law firms will have standardised technology which focuses those that don’t have to use it themselves, take for example emails. Despite the challenges small and medium sized law firms face, such as in-house I.T skills, price, etc, they are aware they must adapt, and many are choosing the sooner rather than later option in 2021.
A budding Lawtech Market
Lawtech, or legal technology, has been around for decades. It is arguable that any technology specifically designed for the legal industry is “lawtech”, which means that since there were legal case management systems back in the 90’s, we have had at least 30 years of lawtech. But the past few years, and even more so in 2021, we have seen the lawtech industry blossom and boom with both the amount of new technology being created and the amount of investment coming into the industry.
Lawtech UK as part of their 2021 report estimate that investment in the lawtech sphere could reach £1.6 to £2.2bn a year by 2026. This is on top of the 101% annualised growth rate of investment between 2017 and 2020. What is even more interesting is that within the lawtech industry, the regulatory compliance segment is growing the fastest having grown 214% on average over the last three years up to 2021. This places companies like Verify 365 and Lawyer 365 in a fantastic position, one being a direct regulatory compliance product (Verify 365 and the other working closely with regulators to ensure it is compliant and lawyers using it are also compliant (lawyer 365).
So, what does this all mean for the lawtech industry? Well simply put, it is a budding, thriving industry that is just getting into the swing of things. The past 5-10 years have been a good starting point. But the industry as a whole will see the 2020s become its decades. The 2010’s was the decade for fintech, but now it’s our turn.
A need to be different
2021 has been an interesting year for legal technology providers because of a need to be different to others. Now this seems obvious right? You must differentiate yourself to other companies otherwise it becomes a case of clients judging you solely on price which although isn’t strictly a bad thing. Being compared on price alone doesn’t drive innovation.
But over the past few years as more legal technology providers have entered the market an interesting phenomenon has occurred. 80% of technology is the same. Think of it like this, you use a case management system, and someone tries to sell you a new one. You don’t make your choice on whether it can open matters, or if it can record time, create invoices, create tasks etc because these are a given. All case management systems have this. You instead choose to change the last 20% that differentiates the two system. For example does one system have both client and office accounting or just one? How easy is it to open matters and can you customise the process etc.
This last 20% has become increasing important in 2021 because with more lawtech companies in the market. The need to stand out, whether that be through AML compliance, ease of use, the use of AI or whatever, has become more important. If lawtech start-ups cannot find what makes them different, then they will become trapped in a price war with others and needless to say. There is always someone cheaper.
2021 has been a fantastic year for lawtech companies and for a company like Lawtech 365 everything mentioned above is great news. But are all the points mentioned throughout this article confined to 2021? Will we see these trends develop and grow over the next decade? The obvious answer is yes, but 2021 has been the year it has been in the lawtech industry because of these changing and emerging trends and to see how they will develop over 2022 will be interesting to see.