The future of the $160 billion industry hangs in the balance as stricter US immigration policies take hold.
After a record-breaking 2024, when remittances to Latin America and the Caribbean accounted for a total of $160 billion, or 2.5% of the region’s GDP, according to the Inter-American Development Bank (IDB), the outlook for this lifeline may be on the verge of a structural shift.
Between the Trump administration’s stricter stance on immigration and a newly approved 1% tax on remittances under the One Big Beautiful Bill Act, set to take effect on January 1, 2026, alarm bells are sounding across the region. Recent research by J.P. Morgan Private Bank suggests that the trend could be exacerbated by slowing job creation in the US, which J.P. Morgan projects will grow at 2.7% in 2025 and 2.3% in 2026.
Against this backdrop, governments, along with private and central banks, are scrambling to cushion the blow for remittance-dependent economies, particularly in the Caribbean.
“If you’re a country highly dependent on remittances, you’re now thinking about how to incentivize other parts of the economy in the long run,” says Patrick Dine, CEO of consulting firm PSD Global, “even if only to circumvent some of the risks at this point.”
A sustained drop in remittances could also affect the receiving country’s currency by reducing the supply of dollars in the economy and constraining investments, points out Ajay Srivastava, cofounder of Global Trade Research Initiative, an Indian think-tank. “When remittance inflows decline, households prioritize consumption needs over savings and investments.”
Governments are already in the process of finding alternatives.
“Different governments in the main remittance-receiving countries are looking for strategies to lessen the impact of the new tax on households that depend on these resources,” says Juan José Li, senior economist in Mexico at BBVA Research. “In Mexico’s specific case, efforts will focus on increasing financial inclusion for remittance senders in the US and for recipients in Mexico through the card issued by the government institution Financiera del Bienestar.”
Data Remains Inconclusive – For Now
Despite the region’s remittance woes, research from Spanish giant BBVA, one of Latin America’s leading lenders, shows that overall numbers for 2025 to date remain mixed.
According to BBVA’s figures, remittance flows from the US to Mexico fell sharply in the first half of the year, registering a year-over-year decline of 5.6%. Accentuating the drop was a 10%-plus decline in the US dollar against the Mexican peso, which intensified the effect on families’ disposable incomes. In contrast, remittances to other Central and South American nations posted double-digit increases during the first half, compared to the same period the year prior: to Honduras (+25.3%), Guatemala (+18.1%), El Salvador (+17.9%), the Dominican Republic (+11.2%), and Colombia (+13.9%).
With those numbers in mind, Li doesn’t yet see “conclusive evidence linking higher numbers of apprehensions or stricter border enforcement with remittance trends.”
The numbers may not be the whole story, however.
The risk lies in the potential decline of migratory inflows into the US, which is key to sustaining long-term remittance growth, notes John Price, co-founder of research and advisory services firm Payments and Commerce Market Intelligence.
“Since remittance flows are typically driven by new migrants sending money back home, this reduction in migration curbs future remittance growth,” he says. “History shows that remitters slow their money sending dramatically after three to five years of living in the US.”
Dine of PSD Global agrees, citing a potential “lagging effect for remittances.”
Dwindling Migrant Inflows
According to US government data, ICE arrests surged to 19,000 in March from an average of about 8,000 a month between 2023 and 2024: a more than 100% jump. While the number remains relatively small compared to the more than 11 million unauthorized immigrants in the US, it delivers a clear message that “individuals should be more cautious when making the decision to immigrate,” says Dine, “even if they have the means of achieving a legal status in the US.”
The Trump administration’s rhetoric around deportation, by itself, “has had a chilling effect on migration,” adds Price. “Potential migrants, discouraged by highly publicized raids and threats, are voluntarily turning back before reaching the US.”
The trend is having a larger demographic impact.
According to recent analysis by the Pew Research Center of US Census Bureau data, the US foreign-born population declined by approximately 1 million people in the first half of 2025: the first time this has happened since the 1960s. Moreover, US government data hints that the US-Mexico border might be virtually shut to new undocumented migrants. In December 2023, the number of apprehensions at the border was 250,000; by March 2025, it had dropped to just 7,000.
Risks remain elevated under the new immigration policy, BBVA’s Li agrees: “If deportations of migrants increase in the second half of 2025 and continue over the remaining three years of the Trump administration, the flow of remittances to Latin America and the Caribbean could be significantly affected.”
Monthly data from the second half of 2025 thus far shows the fall in remittances to Mexico is deepening, with July numbers registering a dismal 16% year-over-year drop: the largest yet on record.
Seeking Alternative Payment Channels
Adding to the equation is the new tax on remittances.
While the initial proposal suggested a steep 5% tax covering all payment methods but only hitting non-US citizens, subsequent revisions reduced the rate to 1%, applicable to all remittance senders including US citizens, but applying exclusively to transfers initiated through a physical payment method, such as cash. The Joint Committee on Taxation estimates the levy will generate around $26 billion over the next 10 years, which could be used to offset part of the estimated $170 billion expenditure on immigration enforcement and border-related operations that the same bill imposed.
Experts warn, however, that for lower-to medium-income migrants, even the 1% remittance tax could be painful, particularly for those who have difficulty adapting to new payment methods.
“This is a long-term adaptation,” says Dine. “Many of the immigrants who use cash have difficulties or are hesitant to use legal payment methods in the US. It takes time for them to adapt.”
The thriving Latin American cryptocurrency payments business expects to see more cash inflows because of the remittance tax. After posting a record-breaking 40% increase in 2024, according to Chainalysis data, with stablecoins accounting for nearly 90% of the total volume, the crypto giant Binance now sees the region as the world’s fastest adopter. This trend, further encouraged by historical local currency volatility, is sparking a regional gold rush in fintech, with companies scrambling to secure access to quick, seamless, tax-free cross-border transactions.
“Fintechs across Latin America are onboarding stablecoins to address customer demand for transparent and stable remittance tools,” says PCMI’s Price. But, he cautions, “This evolution introduces new risks. Stablecoins remain lightly regulated … This raises concerns among regulators and incumbents who fear that crypto might evolve into an end-run around compliance obligations.”
