After President Donald Trump signed his milestone tax and spending bill over the Fourth of July holiday weekend, remittance payments services providers were relieved.
While an earlier version of the bill included a 5% tax on the cross-border money transfers frequently used by migrants to send money to friends and family in other countries, the one Trump signed reduced the tax to 1%. The new remittance tax is effective next year.
Payments companies and fintechs fought fiercely against the tax, arguing it would be a significant cost burden.
In a May letter to congressional leaders, the American Fintech Council, which represents some payments companies, “expressed strong concern” about the tax and said it “would harm small businesses and everyday consumers while empowering bad actors and undermining effective anti-money laundering enforcement.”
The council locked arms with other industry organizations, including the Financial Technology Association and Electronic Transactions Association, to oppose the initial proposal. The trade groups also objected to Americans being required to disclose personal information to avoid having to pay the tax.
New fintech entrants, such as Seattle-based Remitly and the British company Wise, are increasingly competing in the multi-billion-dollar market against established industry players, like Denver-based Western Union, Dallas-based MoneyGram and San Jose, California-based PayPal Holdings.
Some payments industry groups still aren’t happy about the advent of a new federal tax, but they see it as better than the initial proposal.
“If it has to exist….this is the least worst version of all the other proposals,” Scott Talbott, a spokesperson for the Electronic Transactions Association, said by email in response to a request for comment. The association represents PayPal and Wise, among other payments companies, according to its website.
Talbott noted that the tax is now limited to those international remittances paid for with cash or similar payment instruments, including money orders and cashier’s checks.
The tax proposal previously applied only to non-U.S. citizens, according to the text of the May 20 House budget proposal, but the ultimate law calls for all consumers to pay the one-percent tax, according to a post from the law firm Buchanan Ingersoll & Rooney.
The U.S. is the country from which the majority of remittances flow, with the top recipient countries being India, Mexico and China, respectively, according to a World Bank blog post in December. That international organization estimated the expanding remittance market last year at $685 billion in payment flows.
