It depends:

It is either pre-funded, i.e. arrangements are made to have enough money on the other side, so that when a payment is made, the money is taken out of the available balance and paid for.

The other arrangement is credit (which has a counter party risk factor higher than the pre-funded one).

In both cases, it is a bilateral agreement between two entities to have these balances maintained for payments and settlement occurring on a periodic basis.

In plain English…

If You, and let’s call you Andy, are in Chicago, and you have another person, Susan and she is in Manila, you can both enter into an agreement, where by you, will send to Susan, $ 100 and that would be your prefunded balance.

So when someone comes to you (Andy) and want you to facilitate a payment of say $25 in Manila, you will receive the money in Chicago, and ask Susan to payout in Manila from your own money.