In a world where mobile payments and cryptocurrencies are increasingly mainstream, In-House Perspective assesses the role and uptake of alternative payments for in-house teams.

Many of us can now walk out of our doors with nothing in our pockets apart from our mobile phones, knowing we can prove our identities and pay for goods and services with these devices.

And yet, in the corporate world, paying for services rendered or goods received largely remains a case of receiving, processing and fulfilling an invoice. This might be done electronically, but ultimately corporate payments are still predominantly processed through a bank transfer.

As alternative payment methods – such as through apps, messaging and by means of cryptocurrencies – become commonplace for personal use, there’s a question as to whether these will take off as a way for in-house lawyers to pay their external counsel’s fees.

Anurag Bana, Senior Project Lawyer for the IBA’s Legal Policy & Research Unit, says alternative payments are already being used for business in some parts of the world. He points to India as an example.

‘What’s been happening is that due to the impact of the pandemic, technology has really gone to the next level now,’ Bana explains.

‘There are many legal practitioners in India who are now using WhatsApp to get paid for their legal services,’ he adds.

WhatsApp Pay, and similar messaging-based payment systems, do not require users to know the other party’s bank details. Bana says the interoperability aspect could prove a positive from a business perspective, as messaging apps could also help authenticate identities – critical from the external adviser’s end when it comes to know-your-client (KYC) concerns.

‘From a trade and business perspective it’s definitely very useful, there are less procedures involved, it’s quick and you don’t lose too much money depending on the platform you’re using. It’s all there and you’re getting it instantly,’ Bana says.

Barriers to entry

Nathan Wenzel, co-founder and now adviser at legal operations company Simple Legal, says the legal market has potential for alternative forms of payment to take off, as what lawyers are buying and selling is essentially time.

However, the barriers to paying legal fees in alternative ways could be difficult for larger companies to overcome.

‘One of the big holdbacks won’t be the legal department and I don’t even think it would be the law firm,’ Wenzel says. ‘It’s very hard to hold money in a company, it finds a way to leak out, so finance departments have done everything they can to make sure there are as few ways as possible for money to leave the company.’

That means in-house legal teams are unlikely to either want or have the time to spend it persuading their finance departments to implement alternative ways of paying external counsel, adds Wenzel.

Meanwhile there are also barriers at the payee’s end. Joacim Johannesson, Senior Vice-Chair of the IBA Technology Committee and Head of the Fintech Practice at Sweden’s Setterwalls, says that many firms, especially larger ones, remain pretty conservative on fees, both in terms of how they are set and how they are paid.

‘When we’re selling our services it’s very often an extraordinary project involving a lot of value and principles at stake. Nobody wants to talk about alternative payment structures,’ Johannesson says.

Johannesson suggests there could be a more willing market for alternative payments by smaller companies or for volume work where payment is being made on a regular basis in small amounts.

Cryptocurrency

The other form of alternative payments which is under scrutiny is cryptocurrency. As far back as 2019 it was reported that several large US-headquartered firms had agreed to accept payment in bitcoin.

In theory, Wenzel says, making and accepting payments in cryptocurrency could reduce costs and currency risk.

‘The promise of crypto is that it should be very cheap because it just turns money into data and it’s very cheap to move data,’ Wenzel says.

A challenge to cryptocurrency payments by lawyers is ethical; can cryptocurrency payments meet KYC requirements?

‘As long as you declare it, as long as you say this is money you’ve earned for your professional fees, it’s still legal,’ Bana says.

But Johannesson says the KYC issues are a concern, together with the volatile nature of cryptoassets. He adds that none of his crypto clients have ever asked to pay their bills in cryptocurrency.

The future

For the time being, it seems clear that for most of the world traditional bank transfers will remain the most common way for legal fees to be paid, and even legal technology companies are staying away from integrating payments architecture into their offerings.

‘To introduce a new pathway for money to flow, it’s not a technically complicated process. It’s just a business process problem that you would not want to introduce to your company,’ explains Wenzel.

‘Companies that are not cash-based businesses, they can’t have money flows outside of their portal. If you built something that flowed down these pathways you would be a payments company, you would cease to be a legal tech company,’ adds Wenzel.

Bana says that the standardisation of the alternative payments architecture is a major challenge in the corporate world, particularly to enable cross-border payments.

Yet despite these challenges, it’s clear that the use of consumer instant payment solutions in many parts of the globe, and especially Asia, are starting to move into the business sphere. And once people are used to making all their payments this way, they will undoubtedly want the same ease in their work lives.

Just don’t expect the legal world to lead the way.

‘It will happen, but lawyers will never be at the frontier of tech in anything,’ Johannesson concludes ‘If you see a typical trend and it’s working for others, then it would make sense to [join the trend].’