Australia's credit unions, building societies and mutual banks will look to technology and to collaboration in an increasingly tough market next year, according to an analysis of the sector by KPMG. The consulting firm ran a detailed survey of industry attitudes in the mutuals sector and also conducted financial analysis of nine building societies, 10 mutual banks and 49 of the largest credit unions.Peter Russell, KPMG's head of mutuals, identified two of the key risks for the sector as being risk management of its housing loans and use of technology."The sector needs to remain vigilant over the credit quality of residential lending, as well as the systemic risk in this area," he said.Russell also noted that 79 per cent of respondents to the survey said they expected to spend more on technology in 2014 than in the previous year. Mobile applications are on the increase, with their relevance, as perceived by respondents, rising by 124 per cent compared with last year. This led 42 per cent of respondents to conclude that mobile banking will drive down the relevance of their own branch networks. Branch rationalisation and branch sharing arrangements are also "opportunities to be explored" by the sector, says Claire Gilmartin, a manager in KPMG's financial services practice. She noted that the sector has seen a 4.9 per cent rise in costs, in part due to an increase in regulatory requirements, which are a particularly heavy burden for smaller ADIs.Gilmartin said product diversification is crucial to the survival of the sector, which is being pushed by the arrival of e-conveyancing, a change that the major banks are already implementing. She said this is likely to force further consolidation on the sector, which has "an appetite for collaboration". This view is based on comments by respondents that they expect to see the sector decrease to fewer than 80 mutuals in the next five years.The Customer Owned Banking Association's CEO, Louise Petschler, said the KPMG report showed the sector to be in great shape with a solid foundation for growth.She also acknowledged the "challenges and opportunities" ahead, which include competing in a financial system that COBA has consistently said favours the bigger players."The upcoming Financial System Inquiry will be an opportunity to deliver a better system where regulatory fairness allows us to be an even stronger competitive alternative," Petschler said.