CEO Charlie Scharf and Wells Fargo's ( WFC -2.27% ) leadership team have made some great strides toward a turnaround. They have overhauled the corporate culture that led to Wells Fargo's problems in the first place, and are prioritizing expense reductions, an area that has been sadly overlooked in recent history.
On the other hand, at any business there is always room for improvement. There are two specific things Wells Fargo's competitors do a better job of, and in this Jan. 4 Fool Live video clip, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser tell us what they are.
Jason Moser: You're seeing these financial institutions partnering up with these tech companies that are bringing new customer-centric approaches to the market, and then still being a part of their value chain, and that really doesn't mean the business can continue to be successful if they work hard at it.
Matthew Frankel: I would like to personally see Wells Fargo get a little more aggressive with pursuing partnerships with some of the fintechs, I think that would do them good. Like you said, a lot of companies don't want to be banks themselves, but are partnering with the big banks. I know [JPMorgan Chase] ( JPM -2.23% ) has a bunch of partnerships in that respect, and so does Bank of America ( BAC -2.16% ), for that matter. Wells Fargo really hasn't had that level of success. Bank of America, when I've talked about them before, you mentioned that. I still like Bank of America. I mean, they're my biggest bank stock holding, but they've done a much better job than Wells Fargo of embracing technology.
Moser: As a Bank of America account holder, I can tell you they've done a really good job with that. I'm with Bank of America accounts and it's not because I just love Bank of America, but we've had them forever and they've been just very acceptable. It's been good service and good tech there that makes it very easy to bank with them. I'm glad you mentioned that in regards to the banks aspect of it because really, I view that's ultimately it's a competitive advantage. I mean, the cost in the barriers that come with actually being a bank. There are a lot of rules and regulations, a lot of capital ratios you have to adhere to. That is not an easy life being a bank, and so that to me does feel like a competitive advantage to a degree at least.
Frankel: Absolutely. You mentioned costs in there. That's another thing Wells Fargo needs to do a lot better, and I think they will with their new leadership. We did mention earlier that they have the worst efficiency ratio of any of the big banks. Efficiency ratio, if you're not familiar, is essentially how much banks are paying to generate their revenue. An efficiency ratio of 50 percent means they're spending 50 cents for every dollar of revenue they are generating. Most of the big banks have been in the 50s over the past couple of years. Wells Fargo was 65 in 2018 and 68 in 2019.
Jason Moser: Ouch.
Matthew Frankel: They're pretty high efficiency ratios. Their priority for the past decade, as misguided as it was, was to cross-sell as many products to their customers as possible to make their sales goals. All the other banks prioritized embracing technology and reducing expenses. The other banks won. But Charlie Scharf, he's going to cut $10 billion of expenses from Wells Fargo, is his big priority. It's so nice to see them shift to that mindset away from just straight sales goals, because there's two ways to make money in business. You can increase your sales or you could decrease your expenses. They've really neglected the latter of those two and it's nice to see them finally prioritizing it.