Private information obtained by lenders leads to borrower capture to the extent that such information cannot be communicated credibly to outsiders. We analyze how this capture affects the loan portfolio allocation of informed lenders. First, we show that banks charge higher interest rates and finance relatively less creditworthy borrowers in market segments with greater information asymmetries. Second, when faced with greater competition from outside lenders, banks reallocate credit toward more captured borrowers (flight to captivity). Third, if borrower quality and captivity are sufficiently correlated, an increase in the competitiveness of uninformed lenders can worsen the informed lender's overall loan portfolio. The model explains observed consequences of financial liberalizations.

Lenders can exploit households’ payment data to infer their creditworthiness. When households value privacy, they then face a tradeoff between protecting such privacy and attaining better credit conditions. We study how introducing an informationally more intrusive digital payment vehicle affects households’ cash use, credit access, and welfare. A tech monopolist controls the intrusiveness of the new payment method and manipulates information asymmetries among households and oligopolistic banks to extract data contracts that are more lucrative than lending on its own. The laissez-faire equilibrium entails a digital payment vehicle that is more intrusive than socially optimal, providing a rationale for regulation.