Nodal vs Escrow vs Current account - Key differences

Apr 05, 2024

The digital era has moved businesses to online platforms. From clients to merchants, partners, and so on, e-commerce payments are a confusing process. To this end, your business will automatically compare nodal vs. escrow or current account.

The comparison of Nodal vs escrow vs current account is to assist businesses with dealing with the mind-boggling payments that e-businesses deal with.

Understanding the types of payment flow for online businesses

There are three kinds of payment gateways:

1. On-site payment:

Large-size organizations will quite often use on-site payments dealt with on their servers where the checkout experience and payment handling all operate through your framework.

Presently, the benefits are flipped — you'll have more control and obligation.

If you handle payments on-site, each factor counts, and any improvement to the shopping experience can make experiential changes for your target audience — particularly valid for any retailer with a high sales volume.

2. Checkout on location, payment off-site.

Through this strategy, the front-end checkout will happen on your site; however, the payment handling occurs through the gateway's back end. Like diverted payment gateways, this strategy can improve the payment processes while guaranteeing expanded security toward the back.

Nonetheless, the drawback is that you will not have the option to control the client's whole experience through the payment gateways.

3. Redirects

Redirects frequently incorporate choices for elective payment strategies, like an organization permitting the utilization of PayPal. At the point when the passage takes a client to a PayPal payment page to deal with the total exchange, it turns into a Redirect.

An independent venture can utilize a Redirect passage to integrate the comfort and security of a larger platform. Redirects enjoy the benefit of straightforwardness for the retailer; however, they likewise mean less control for the vendor — and a second step for clients.

What is a Nodal Account?

Nodal accounts are bank accounts that are commanded by the RBI for businesses that are intermediaries, associating clients with sellers. Online businesses must go through the nodal account rbi guidelines thoroughly.

What truly is an intermediary? All things considered, your online trading would be an intermediary if:

• You receive payment online from clients for the benefit of your sellers.

• Where you are just obtaining the items and not manufacturing them.

• Where you don't completely pay for the products or the inventory. 

The striking component of online trade is the diverse collaborations between a few obscure parties — clients, merchants, installment gateway, and so on. In the event that payouts between these parties aren't done on time, it will prompt a disintegration of trust. 

The balance in the nodal account doesn't have a place in the payment gateway. The bank's account is the sole motivation behind dispensing the sum to the merchant. Consequently, it keeps up with the trust and security of the merchant and the client and empowers straightforwardness.

Thus, according to the nodal account RBI guidelines under the Payment and Settlement Systems Act, the intermediaries need to keep up with this inner financial balance for the assortment and dispensing of the payments on time.

The intermediaries can open the nodal account with the bank offering the nodal account. The intermediaries would have to satisfy the nodal account RBI guidelines made with the bank to open the nodal account and be qualified for something similar.

The nodal account acts as a brief vault to store and circulate the cash to associated parties. Payouts are not just restricted to dealers/sellers.

Be that as it may, they additionally incorporate different elements like transportation expenses, commissions to installment processors and charges to intermediaries, and so on. There are significant terms to comprehend corresponding to nodal accounts.

They are mentioned underneath:

1. Intermediaries

An intermediary is an element that gathers cash from clients online and afterward moves it to the dealers and sellers included. Online aggregators and commercial centers are instances of intermediaries. Exemptions to this are organizations that work with the conveyance of items or services right away, similar to the sale of film tickets.

2. Settlement Cycle

As characterized by the nodal account RBI guidelines, the settlement cycle for installments diverted through nodal accounts is T+3 days. T is characterized as the fulfillment of the transaction, where the client has gotten the item or services as characterized by the intermediaries.

3. Debits

Debits can be made to the financial balances of merchants, vendors, and other partners in light of mutual agreements. This likewise incorporates refunds for questioned exchanges. The business can raise a ticket for debit, and the last endorsement for debit needs to come from the bank.

4. Credits

Credits can be made into the nodal account in light of pre-decided agreements.

How Nodal accounts safeguard the interests of the business & merchants

A nodal account is used to cover the 'trust' factor. It shields the interests of clients and merchants, so payments are gathered and handled, and payouts are finished to pertinent sellers immediately. The nodal account is the stop for the payments between the client and the merchant.

This account would initially acknowledge the online payment made by the client. It is answerable for gathering the payments for the benefit of the trader, and the ideal payment of the settlement is credited to the dealer within his settlement period.

Process of opening a Nodal Account

A nodal account is expected to be opened by organizations (intermediaries) holding cash in the interest of merchants and clients. A nodal account authorizes the trust factor for organizations with regard to convenient payouts.

Since private ventures have numerous organizations that cash will be paid out to, Nodal accounts guarantee opportune payouts to all sellers, keeping them in a state of harmony with the payment cycle. Instamojo is a type of nodal account.

Luckily, you don't have to go through the long course of opening your nodal account in the event that you have an account on Instamojo. You should simply make an account on the site, incorporate your payment gateway, and your payouts will be dealt with.

A business can demand a nodal account from any bank endorsed by the RBI. Various banks force various rules to support nodal account demands.

Qualification measures could go anyplace, from how many capital ventures to business notoriety to exchange volumes to be handled.

Organizations will likewise be expected to present all KYC accounts and consent to severe compliance prerequisites through simultaneous reviews as ordered by the Payments and Settlements Systems Act, 2007.

In contrast to opening and keeping a nodal bank account, a decent option is to use nodal account administrations like Razorpay Route. It assists you with dealing with all the aspects of your cash streams and payouts while guaranteeing severe compliance necessities.

You should simply coordinate with the programmers to accommodate APIs and spotlight on building your business! 

After you fulfill nodal account RBI guidelines on business notoriety, exchange volumes, compliance prerequisites, and so on, it will be set up. Setting up the account requires consenting to a bank account agreement, highlighting the specifics regarding the settlement cycles.

What is Escrow Account?

An escrow is a legal agreement wherein an outsider (the partner or escrow specialist) gets and dispenses cash or property for the essential executing parties, with the payment subject to conditions consented to by the executing parties. 

It incorporates an account laid out by a representative for holding subsidies for the specialist's head or another individual until the end of a transaction; or a trust account held in the borrower's name to pay commitments, for example, local charges and insurance payments. 


An escrow account is an impermanent vault of cash held by a trusted outsider for the benefit of two executing parties that are limited by an agreement. By and large, an escrow account in India is utilized for the accompanying conditions:

• At the point when the purchaser and dealer haven't met previously

• At the point when the agreement is perplexing and long haul

• At the point when the contact has a high worth and payment

• Where payment must be made as per the phase of the culmination of the undertaking (Eg. a land buy)

Escrow accounts in India are regularly utilized in the real estate business. A purchaser who is keen on buying the house can utilize an escrow account to stop the cash (for the all-out worth of the house) and make payment in parts, in light of the degree of completion, as framed in the conditions of the purchase contract.

Along these lines, the purchaser is guaranteed that there is no deficiency of cash, and the dealer is guaranteed the purchaser's capacity to come up with all required funds.

Escrow accounts are likewise utilized in online businesses. Escrow mitigates the potential gamble included when the purchaser is obscure to the vendor. For example, if you were purchasing recycled furniture from an obscure individual, an escrow account is suggested.

The escrow account rules in India go about as purchaser insurance and protects you from losing cash over unsuitable, harmed, or undelivered items or administrations. Subsequently, it additionally decreases the probability of debates or chargebacks for the vendor.

For the most part, banks and monetary help organizations act as escrow specialists and give escrow administrations to an expense. Try to go through the point of the agreement carefully with the help of escrow specialists prior to joining.

An approved PPI Issuer or a PA is expected to keep an escrow account with a planned business bank on a continuous premise. To guarantee guidelines for the real estate business, the Government made escrow accounts rules in India compulsory for land exchanges.

As a matter of fact, the Real Estate (Regulation and Development) Act, 2016 requires real estate manufacturers to keep 70% of the client finances in an escrow account.

Escrow account opening procedure in India

You might require an escrow account in India in the event of:


An enormous exchange (between at least two parties) that have a few legitimate commitments joined to them which should be satisfied before the arrival of the payment or a resource.

Here is a model: Suppose you are a construction builder and intend to sell apartments. Presently, we should accept that you plan to get these apartments booked by clients before they are prepared to move in. Normally, there are transaction gambles.


The client probably shouldn't pay for everything before ownership.

There is a gamble of tricks (cash brought diverted to different roads)

Clients might be vigilant on the off chance that pre-decided conditions are not satisfied


Here's where an escrow account in India steps in.


It decreases the gamble of extortion as it acts as the outsider between the two parties. Also, it helps control the income between the two parties.


Here's how to open an escrow account in India:


The purchaser and the merchant concur before opening the account, which includes the agreements of the trading resources. This arrangement is the "Escrow agreement".

Subsequent to assessing and consenting to the agreement, the purchaser stores the sum in the escrow account.

The escrow specialist checks and approves the receipt of the two parties.

The escrow specialist routinely screens the purchaser's account to affirm whether the purchaser is paying the dealer according to the concurred interaction.

Depending upon the positive reaction from the two parties, the resources under the escrow specialist's influence are delivered at the concurred occasion or time.

If there is any conflict between the two parties, the escrow account in India will move to dispute resolution. The resulting cycle of dispute resolution concludes with how to manage the escrow reserves.

Nodal account vs. Escrow account for your business

Organizations need specific kinds of accounts to work in a protected and dependable way. Like in an escrow account, the cash is held with an outsider until all legitimate activities according to the agreement are finished.

Online businesses include a few parties like merchants, purchasers, strategies, and cash gets across every one of them for a fruitful activity. 

There are two terms in business - nodal account vs. escrow account, which are very comparable but unique. These are unique sorts of bank accounts to deal with complex exchanges for online trade.

Both are utilized to hold sums as outsiders and structure a significant piece of Fintech.


The contrast between nodal account vs. escrow account

• An escrow is a transaction rationalist and can be utilized for basically everything. A nodal account is just for organizations that go about as intermediaries.

• In an escrow, the purchaser and merchant haven't met; however, both trust the escrow specialist to make the best decision. In the event of a nodal account, all payments are moved to it and afterward dispensed to the right payees like merchants and coordinated factors.

• Both nodal and escrow accounts in India might have computerized payment choices; however, the motivation behind each bank account is unique.

• For a nodal account, a delegate will sell items from various vendors, gather payment from purchasers in the nodal account, and afterward pay the merchants. The nodal account holds cash till all transactions for a cycle are finished, and afterward, the cash is dispensed.

In an escrow, the payment made by the purchaser is held by the escrow specialist till all conditions of the agreement are finished by the vendor, and afterward, it is delivered. This is finished to guarantee that the purchaser's cash is secured and they aren't cheated.


Nodal accounts vs. escrow accounts have become possibly the most important deciding factor because of the intricacies of the business world. Each has its guidelines and is made for simplicity of working with straightforwardness.


In an Escrow account in India, reserves are held while two distinct parties satisfy a transaction. For a straightforward model, think about a purchaser and merchant. The purchaser can submit a request for a thing and afterward move the payment to an escrow account.

The cash is held in that account until the merchant delivers the request, it is gotten by the purchaser, and the purchaser is happy with it. Then the cash is delivered to the merchant. 

An escrow account in India is utilized when purchasers and dealers haven't met when there is a long-haul contract with high worth, and payments are according to phases of completion.

Protections and resources can likewise be held in an escrow account. Escrow administrations are given by various outsiders, not banks. Escrows can be utilized for huge and little exchanges, and it doesn't make any difference what the size of the exchange is.

Nodal accounts are explicit kinds of bank accounts. These accounts have been ordered by the RBI for any organizations which go about as an intermediary to interface dealers and purchasers.

A business is a delegate in the accompanying cases — if cash is gathered by you for your sellers' sake, assuming that you are obtaining items without assembling them yourself, or on the other hand, if you don't pay for the items completely nor do you stock the item. In a circumstance like this, where there are numerous parties included, trust is significant.

Also, nodal accounts bring straightforwardness and simple command over the development of cash.

Why do businesses choose to open a Current Account?

A current account is opened by entrepreneurs, business visionaries, and those who need to routinely make countless transactions.

Since the volume of transactions, as well as the sum per exchange, is, for the most part, high, no interest can be earned from the balance. Be that as it may, a current account assists with deposits, withdrawals, and contra exchanges.

A current account can be opened in any commercial bank. The entire reason for a current account is to work with business people, and for finance managers to do their exchanges consistently.

Here are a few benefits you could get by having a current account for your business.

1. Current account aids limitless transactions

One of the main benefits of having a current account for your business is that there is no limit on the number of transactions. You can make several transactions in a day. 

Also, transactions are allowed to be high (in value and volume) to the point that you don't need to stress over cash movement by any means! This empowers your business to have smoothness concerning tasks.

2. Keep your resources from your business

It is vital to keep your and business resources separated. It is constantly suggested you have a current account so you can follow your money inflow without any problem. This provides you with a predominant approach to arranging and dealing with your financial plans

You likewise get an insight into your expenses. Having a clean monetary account permits you to coordinate your information, which can prove to be useful for taxes and deductions. Extraordinary accounting is consistently a reward!

These are the three exceptional kinds of bank accounts for businesses. Every one of these varies from the others and has various purposes. The nodal account is between the client and the vendor. The intermediaries keep up with it as an interior bank account.

Inside the settlement period, the payment is finished. The escrow account in India is an outsider account and works according to the understanding between the purchaser and the dealer.

Ultimately, the current account is a bank account for transactions done by businesses. You need to choose wisely between nodal vs escrow vs current account for your online business.