Although I haven't undergone this process myself, I'm sure you have to pay when you submit your application. As with most things to do with INZ, they want the money upfront so it's safely in their hands. If you were to submit your application without paying the fee first and INZ turned you down, I doubt you'd feel much like paying then.
Fees have to be paid in the currency of the country in which you lodge your application, so if you lodge it in the US you would pay in US$. This can either be paid by bank draft or credit card if you're doing it online.