Today, online businesses are introducing newer income opportunities, so almost every individual plans to set up their own business. Online payment has become an integral part of online business; however, online money transfer is not like simple customer to merchants payments - money is, rather, stored in different accounts for safety reasons. Nodal Account is one such account – let’s explore it through this article.

What Is A Nodal Account?

Nodal Accounts or nodal bank accounts are the mandatory account as per RBI guidelines for intermediaries. Wondering what are intermediaries?

Intermediaries are the mediums that sell the products of different merchants/brands on their websites and facilitate transactions. Once the settlement period is over, they pay the amount to the merchants or manufacturers. Until the completion of settlement, the amount is stored in an internal account called a nodal account. eCommerce websites or marketplaces, payment gateways, as well as payment aggregators are intermediaries.

Purpose – What Do Nodal Accounts Do?

Escrow Accounts work where some risk is associated—it means that either party may not be able to fulfill the commitments. In other words, something may go wrong in the transaction.

Escrow Agreement

A Nodal Account securely stores money that comes from the customers for the merchants. Similarly, the refund amount remains in these accounts before paying the customers. So, it is a temporary safehouse of money for buyers and sellers and brings trust to all online transactions.

Other payouts, such as transportation fees, commissions, and other payments, can also be made through Nodal Accounts.

How Does A Nodal Account Work?

The mechanism of Nodal Accounts is somewhat complex – check out the process below:

• Customer pays through UPI/Net-banking/credit card/debit card, and then amount gets deducted from customer's bank account
• Amount reaches the Nodal Account of the intermediary
• Funds disburse to vendor’s account once the service charges or any other applicable charges are deducted

Who Needs A Nodal Account?

As per RBI guidelines, all intermediaries must hold Nodal Accounts. Let's understand intermediaries more clearly.

An intermediary is one who:

1. Works as a middleman and receives payment from buyers, then passes it to the sellers and vendors, such as eCommerce websites, marketplaces, etc.
2. Any platform where buyers and sellers interact and transact
3. Payment aggregators and payment gateways that facilitate payments

Features of Nodal Accounts

The features of Nodal Accounts are:

• APIs for beneficiary registration, payment initiation, and status check
• Real-time reconciliation reports and MIS
• Multiple transaction modes for real-time payments  – NEFT, RTGS & IMPS
• Audit and Regulatory Reporting
• Simple KYC documentation
• Integrated solutions
• Technical support
• Compliance advisory

How To Open Nodal Accounts?

To open a Nodal Account, you must contact a bank or visit their official website. Almost all banks offer this service. Opening a current account before opting for a Nodal Account is highly recommended.

Also, read Escrow Account

Charges Of A Nodal Account

Charges for Nodal Accounts vary in different banks, so it is better to go directly through their guidelines.

Advantages And Benefits Of Nodal Accounts

Nodal Accounts come with many advantages and benefits, such as:

• Transparent and secure online transactions
• Options to view account balance and statements anytime through Net Banking
• Automated payouts over APIs
• Easy payment collection through UPI, cards, wallets, net banking, etc.
• Easy payouts management
• Risk management
• Disputed merchant blocking

Differences Between Nodal Accounts and Savings Accounts

Now, let’s take a look at the differences between Nodal And savings accounts in the following table:

	Nodal Account	Savings account
Meant for	Intermediaries	Individuals
Purpose	Securing business transactions	Depositing and withdrawing money
Use cases	eCommerce, marketplace, payment gateways, payment aggregators	Real estate, construction, tax, loan, acquisition, etc.
Disbursement period	After settlement	As soon as the contract is fulfilled
What does it Control?	Online transactions	Money, securities, and other assets

1. Acquisitions and merger Escrows
2. Auction Escrows
3. Business Escrows
4. Construction Escrows
5. Freelancing Escrows
6. Lending Escrows
7. NBFC and fintech Escrow
8. Online sale Escrows
9. Real estate Escrows
10. Rental Escrows
11. Stock market Escrows

Escrow Accounts are mandatory for high-value, high-volume, and high-risk deals, so any industry making any such deals must pass these transactions through Escrow Accounts to keep them safe.

Charges Of A Nodal Account

To open an Escrow Account:

1. First of all, you have to select the Escrow provider, and check whether their service, reviews, ratings, and fees are acceptable for you or not
2. Then, go ahead and submit your information and create your account
3. Read minute details and instructions in the agreement and start depositing funds
4. Keep monitoring the transactions and close the account once the parties fulfill the conditions

Almost all banks provide Escrow Account facilities; you first have to choose which bank you want to proceed with.

Advantages And Benefits Of Escrow Accounts

Some advantages and benefits of Escrow Accounts include:

• Reducing the risks of various exchanges by protecting both parties
• Holding the asset till the conditions are met; so it's completely safe
• Empowering real estate, eCommerce, online gaming, digital marketplace deals
• Improving trust factor during the transactions
• Automating the transactions to minimize failures
• Easing fund management and tracking of the entire project

Tips For Choosing The Best Escrow Account

Are you looking for an Escrow provider for your business deals? Make sure that it fulfills your business needs perfectly, so don't forget to check the following:

• Auto-reconciliations
• Transparency of the terms and conditions
• Prompt service
• Robust APIs
• Availability of support

Escrow Account and Nodal Account – Differences

Nodal account works as a mediator too, but in a different manner – so there are some certain differences between Escrow Accounts and nodal accounts:

	Nodal Account	Escrow Account
Meant for	Intermediaries	Any individual - buyer and seller handling high-value and high-risk payments
Purpose	Maintaining the smooth flow of communication and transaction between the merchant, buyer, and payment solution	Reducing risks of the payments
Use cases	eCommerce, marketplace, payment gateways, payment aggregators	Real estate, construction, tax, loan, acquisition, etc.
Disbursement period	After settlement	As soon as the contract is fulfilled
What does it Control?	Online transactions	Money, securities, and other assets

Wrapping Up

Escrow Accounts are slowly gaining importance in India because the tendency of Indians towards investments in the stock market, properties, etc., is surging. It will grow even more in the coming days, so Escrow Accounts will become more popular and significant. It is the trust factor everyone wants when investing high amounts because no one wants a loss of hard-earned money. As Escrow Accounts introduce a new person as a third-party Escrow Agent to take care of the assets until all the conditions are met, the buyer and seller can relax. With Pay payment gateway, one can quickly deposit funds in the Escrow Account using any payment method.