How does online bank expansion (digital-only depository institutions that originate loans without human intermediation) affect consumer credit markets? Using loan-level data from Germany, we show that online banks cherry-pick low-risk borrowers, generating adverse selection on traditional banks. We document three facts. First, the market is segmented across lender types. Online banks serve the lowest-risk borrowers, traditional banks the medium-risk segment, and fintechs the highest-risk segment. Second, online banks attract these borrowers by offering substantially lower rates, an advantage that diminishes with risk. Using historical branch density as an instrument, we isolate the supply-side mechanism of this pattern. Third, traditional banks more exposed to online bank expansion experience a deterioration in their borrower pool and charge higher rates as a result. A parsimonious model with lenders who observe the same application information but use it differently rationalizes these facts. Traditional banks use coarse pricing, a legacy of costly manual underwriting for a standardized product, while online banks use finer pricing and cherry-pick the best borrowers from within traditional banks' pricing cells. Our findings highlight that technological development in credit markets can generate important distributional consequences.