How exactly do remittance companies and money changers operate and make money?

To answer your question (citing your example):

• In a pre-funded model, the Sending Agent would pre-fund in their native currency, i.e. the Sending Agent would deposit say US$ 100,000 in a US Dollar Account with a Bank in the Philippines.
• The Agent in Philippines through their bank or government set rate, would intimate everyday the FX Conversion rate to the Sending Agent in the US.
• So at start of a business day in Philippines, the Receiving Agent would contact their bank's treasury department an obtain the day's FX rate for the US Dollar against the Philippines' Peso (PHP).
• This rate is then quoted back to the Sending Agent with their margin, and additional information like top limits, bottom-limits, hold out ranges, transaction hours and settlement hours data (at the very minimum)
• This rate is then used by the Sending Agent in accordance with the Dodd-Frank (WSR/CP) Act and quoted.
• When someone decided to send $ 10,000 to Philippines. They will know exactly how many Pesos the beneficiary will get in Philippines.
• Because the money has been collected at the Sender's side, the Beneficiary Agent will simply tap into the Pre-Funded Account and book US$ 10,000 at the FX trade they provided earlier on in the day.
• This booked local currency is then transferred into the Beneficiary's end account as PHP.
• The Pre-funded US Dollar account is now sitting at US$ 90,000
• The Sender (or Remitter) agent is holding US$ 10,000 which is usually wired across to the pre-funded account at day's end. Assuming (though unlikely) the wire transfer for $10,000 is available the next day, the Beneficiary's Pre-Funded Account is now holding US$ 100,000
• All Non-Native FX deals are done with the up-stream bank the Beneficiary Agent is working with.

The whole ecosystem is 100% balanced. Netting out of currency for transfers in many markets is now not allowed. This is specially true for transactions swaps.


Hope that clarifies.