Nodal Account: Features, RBI Rules & How It Works
TL;DR - Summary
- What is a nodal account? - A nodal account is an RBI-mandated bank account that temporarily holds customer payments on behalf of intermediaries such as marketplaces and payment aggregators, before the funds are settled to the final recipient.
- What are the features of a nodal account? - A nodal account keeps customer funds segregated from the intermediary's own money, sits under bank control with no free withdrawal rights, earns no interest, and restricts fund use to registered vendor payouts and refunds.
- What are the RBI rules for a nodal account? - RBI rules require settlement within T+2, or T+3 where a nodal bank participates, full fund segregation, no interest accrual, and quarterly concurrent audits filed within ten days of each quarter end.
- How does a nodal account work? - A nodal account works in four stages: the buyer's payment is credited to the account, funds are held until delivery or service completion, settlement is made to the seller within the RBI window, and refunds are processed from the same account.
What Is a Nodal Account?
A nodal account is a purpose-built bank account that the Reserve Bank of India (RBI) requires for certain businesses acting as intermediaries. These businesses sit between buyers and sellers and collect money on behalf of other parties. It helps keep customer funds separate from the intermediary's own funds until they are transferred to the final recipient.
A few characteristics set it apart from an ordinary business account:
- The word "nodal" refers to a central junction. The account serves as a temporary holding point where customer funds rest until they move to the rightful recipient.
- The account is maintained by the bank under RBI regulations, and the intermediary can neither operate it freely nor withdraw from it at will.
- Customer money passing through the account never turns into the intermediary's own property. The account exists solely to pass funds onward.
Sectors where these nodal accounts are most common include e-commerce, fintech, travel, food delivery, education, insurance, crowdfunding, and government collections.
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Nodal accounts are mandatory for RBI-authorised payment aggregators. Individual freelancers and exporters receiving money from abroad generally do not require one.
Who Needs to Open a Nodal Account?
A nodal account must be opened by certain businesses that act as payment intermediaries. These businesses receive customer payments that are ultimately owed to a merchant or service provider.
Businesses that typically need a nodal account include:
- Payment aggregators, payment gateways, online marketplaces, e-commerce platforms, and bill payment companies.
- A business generally qualifies as an intermediary if it collects payments from customers on behalf of merchants or service providers. Businesses that facilitate payments for others may require a nodal account, depending on the applicable RBI regulatory framework.
- Marketplaces such as Amazon and Flipkart, ride-hailing apps, travel booking sites, fintech aggregators, and logistics companies.
Businesses that generally do not need a nodal account include:
- Individual sellers receiving payments only for their own goods or services are not intermediaries and hence, do not need one.
- Section 2 of the RBI framework carves out an exemption for platforms where delivery happens the moment payment is made, such as airline or movie ticketing. These are classified as Delivery versus Payment (DvP) cases.
Most intermediaries also maintain a current account, alongside the nodal account to keep operations and regulated fund flows separate. Understanding the difference between a current account and a savings account can help businesses choose the right banking option.
Businesses that require a nodal account should also be aware that opening one involves KYC documentation, bank approvals, compliance checks, and often manual transaction uploads where server-to-server integration is unavailable.
How Does a Nodal Account Work?
A nodal account works by collecting customer payments, holding them temporarily until transaction conditions are met, and then transferring the funds to the seller within RBI-prescribed timelines.
Each transaction passes through four stages:
- Payment Initiation: The buyer makes a payment online, and the funds are credited to the nodal account rather than directly to the seller.
- Fund Segregation: The funds remain in the nodal account until conditions such as delivery of goods or service completion are fulfilled.
- Settlement: The funds are then transferred to the seller within the RBI-prescribed T+2 or T+3 settlement window.
- Refunds and Disputes: If a refund is required, it is processed from the nodal account rather than the seller's account, thereby keeping the funds segregated.
The movement of funds into and out of a nodal account is governed by RBI regulations.
- Credits: Customer payments, pre-agreed fund transfers, and refund credits from failed or disputed transactions.
- Debits: Payments to vendors, logistics charges, intermediary commissions at pre-agreed rates, and customer refunds.
- Quarterly Audit: The nodal account must be audited every quarter, and the audit certificate must be submitted to the Department of Payment and Settlement Systems within ten days of the end of the quarter.
- Extended Settlement: If a vendor and marketplace agree to extend the settlement timeline, the arrangement and the reason for the delay must be documented in the audit report.
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If you sell on Amazon India or Flipkart, it is normal for your payments to pass through a nodal account as the compliance burden sits with the platform, not you.
What are the Features of a Nodal Account?
The main features of a nodal account include fund segregation, bank-controlled operation, fixed settlement timelines, restricted fund usage, and regulatory compliance. These features fall into two groups; i.e., operational and compliance.
Operational Features
These govern how money moves through the account on a day-to-day basis:
- Fund Segregation: Customer funds and merchant settlement funds are kept separate from the intermediary's own business funds. The intermediary cannot use the funds held in the nodal account for its operational expenses or working capital.
- Bank Control: Day-to-day control rests with the bank. The intermediary has no independent access or discretionary withdrawal rights.
- Fixed Timelines: Settlement within T+2 (or T+3 if a nodal bank participates), counted from the day the transaction is completed.
- Restricted Use: Pooled funds may only pay registered vendors or process refunds.
- Commission Restrictions: The intermediary may draw only pre-agreed commission fees from the nodal account.
Compliance and Security Features
These features keep the account within the RBI's regulatory framework:
- Regulatory Oversight: Governed by the RBI under the Payment and Settlement Systems Act, 2007.
- Mandatory Quarterly Audits: Concurrent audits are conducted every quarter, and compliance certificates must be submitted to the Department of Payment and Settlement Systems within ten days of the end of each quarter.
- Payment and Reconciliation: Support for NEFT, IMPS, and other payment modes simplifies transaction tracking and reconciliation, while secure APIs handle payment initiation, beneficiary registration, payouts, and payment tracking.
- No Interest Accrual: RBI prohibits interest on nodal account balances, thereby removing any incentive to delay settlement.
What are the Benefits of a Nodal Account?
Nodal accounts benefit businesses and customers by ensuring secure fund management, regulatory compliance, and greater transparency.
For Businesses
- Enhances security by keeping customer funds separate from business funds.
- Improves transparency and builds trust with customers and merchants.
- Helps businesses comply with RBI regulations and simplifies audits and regulatory reporting.
For Customers
- Keeps funds secure until the transaction is completed.
- Reduces the risk of fraud by releasing funds only after successful transactions.
- Increases confidence through transparent, RBI-regulated payment processing.
Operational Benefits
- Supports multiple payment methods, such as NEFT and IMPS, simplifying collections for platforms handling multiple merchants or high transaction volumes.
- Simplifies refunds, dispute resolution, and fraud detection through clear audit trails.
- Helps businesses comply with broader payment regulations.
Real-Life Example of a Nodal Account
One of the most common examples of a nodal account is in e-commerce marketplaces such as Flipkart. Here is how it works:
- Step 1: A buyer purchases a product from an independent seller and pays ₹3,000. The amount is credited to the marketplace's nodal account, where it remains while the order is processed and delivered.
- Step 2: Once the delivery is confirmed, the nodal account transfers ₹2,700 to the seller’s bank account and ₹300 to the marketplace as its commission.
- Step 3: If the buyer returns the product, the full ₹3,000 refund is issued from the nodal account instead of the seller's account.
Throughout this process, the marketplace does not take ownership of the customer's money. The nodal account holds the funds securely and disburses them only in accordance with RBI guidelines.
A similar process is followed by payment aggregators such as Razorpay and Cashfree, where customer payments are temporarily held in a nodal account before being settled to the merchant's bank account.
What Are the RBI Guidelines for Nodal Accounts?
The RBI guidelines for nodal accounts, issued under the Payment and Settlement Systems Act, 2007, set out how nodal accounts are structured, operated, and audited, to ensure secure fund management and timely settlement.
Here is a summary of the nodal account RBI guidelines:
- Nature of Account (Section 3.1): The account sits within the bank's own books, leaving the intermediary with no direct ability to maintain or operate it.
- Settlement Timelines (Sections 3.2 and 4.1): T+2 in the standard case and T+3 when a nodal bank participates, with T counted from the day the transaction completes.
- Permitted Credits: Customer payments, agreed advance transfers, and refund credits arising from failed or disputed orders.
- Permitted Debits: Vendor payments, pre-determined transfers, customer refunds, and commissions at pre-agreed rates.
- Interest Prohibition: Nodal accounts do not earn interest, thereby preventing intermediaries from holding customer funds longer than necessary.
- Audits (Section 6.1): Quarterly concurrent audits, with certificates submitted to the Department of Payment and Settlement Systems within ten days of quarter end.
- DvP Exemption: Instant-delivery platforms such as airline or movie ticketing fall outside the regulation.
- Segregation Rule: Nodal account balances must remain separate from the intermediary's operating funds at all times. Businesses involved in cross-border payments should also understand capital and current account transactions under India’s foreign exchange regulations.
How To Open a Nodal Account?
Opening a nodal account requires confirming eligibility, choosing a partner bank, preparing the required documentation, completing bank due diligence, and integrating the account with your payment systems.
The process runs through six stages:
- Step 1: Confirm Eligibility: Payment aggregators, payment gateways, e-commerce platforms, online marketplaces, and bill payments that collect payments on behalf of merchants qualify to open a nodal account. Businesses that deliver goods and services instantly (DvP cases) are exempt.
- Step 2: Choose a Partner Bank: Select a scheduled commercial bank in India that offers nodal account services. Each bank may have different eligibility criteria based on factors like capital, business reputation, and transaction volumes.
- Step 3: Prepare Documentation: Banks typically require the company PAN, Certificate of Incorporation, GST registration, a board resolution authorising the account opening, a business model explaining the intermediary’s role, copies of agreements with merchants, refund and settlement policies, and a list of merchant beneficiaries. Some banks may additionally require a Tripartite Agreement outlining fund flows, settlement timelines, and commissions.
- Step 4: Undergo Bank Due Diligence: The partner bank reviews the application, conducts due diligence, and verifies compliance with applicable RBI regulations before opening the nodal account.
- Step 5: Activate the Account: Once approved, the bank sets up the nodal account as an internal account, routes customer payments into it, and settles funds to merchants within RBI timelines.
- Step 6: Integrate: Connect the nodal account with your payment systems, ERP, and accounting tools. Depending on the bank, API-based integration may be available for payment processing and settlement workflows.
Depending on the bank's processes, certain activities, such as beneficiary onboarding and payout approvals, may require additional verification to ensure compliance with RBI guidelines.
Nodal Account vs Escrow vs Current Account: What's the Difference?
The major difference between a nodal account, an escrow account, and a current account lies in purpose and control. Nodal accounts facilitate intermediary payments under RBI regulations, escrow accounts hold funds until contractual conditions are met, and current accounts support a business's routine banking operations.
Here is a quick comparison between nodal vs escrow vs current account on how they differ on purpose, ownership, regulation, and use.
| Feature | Nodal Account | Escrow Account | Current Account |
|---|---|---|---|
| Purpose | Move buyer payments to sellers through an intermediary | Park funds until agreed contractual conditions are satisfied | Manage day-to-day business banking |
| Who holds it | Sits on the bank's books, run under RBI rules | Managed jointly by the transacting parties per a legal agreement | Fully owned and run by the business itself |
| RBI mandate | Yes, Payment and Settlement Systems Act, 2007 | No, contract law and banking norms apply | No, only standard KYC norms |
| Interest earned | No | Usually no | Generally no, though some variants may offer it |
| Best suited for | Marketplaces and aggregators such as Razorpay, Cashfree, Flipkart | Mergers, property deals, legal settlements | Payroll, vendor payments, daily operations |
In terms of settlement and control, a nodal account must settle funds within T+2/T+3 timelines and cannot be used for business expenses. An escrow releases funds only after contractual milestones are achieved, and a current account gives businesses complete control over their funds for day-to-day operations.
Choose a nodal account if you hold funds on behalf of multiple parties, an escrow account if funds should be released only after specific conditions are met, and a current account for routine business operations.
Do Indian Freelancers and Exporters Need a Nodal Account to Receive International Payments?
No, a nodal account is never required for an individual Indian freelancer or exporter receiving international payments since these accounts belong exclusively to payment intermediaries. It does not belong to the individuals or businesses that ultimately receive the funds.
The distinction lies in the role each party plays:
- The requirement applies to payment aggregators and marketplaces that collect money on behalf of others. A freelancer or exporter is the final recipient of the payment chain, not an intermediary.
- If a foreign client pays through a payment gateway, any nodal account involved in the transaction is maintained by the payment gateway. The freelancer or exporter does not open or operate it.
- International payments are received either in the exporter’s or freelancer’s regular bank account or through RBI-regulated cross-border payment platforms offering features like virtual USD accounts.
- The primary compliance requirement for exporters receiving foreign payments is the Foreign Exchange Management Act (FEMA). Depending on the payment channel and bank, inward remittances may be supported by documents such as the Foreign Inward Remittance Advice (FIRA).
- Compliance with FEMA documentation requirements is separate from nodal account requirements. Cross-border payment platforms help simplify international collections and provide the documentation required for export compliance.
How Can Skydo Help Receive International Payments?
Skydo gives Indian freelancers and exporters a compliant route to receive international payments from foreign clients. Unlike a nodal account, it is designed for the party who ultimately receives the funds, not the intermediary that routes them.
Because nodal accounts are maintained by payment aggregators and marketplaces, freelancers and exporters have a different requirement, i.e., receiving payments from foreign clients efficiently and compliantly. This is where a cross-border payment platform paired with virtual foreign currency accounts, such as Skydo can help.
Here is what the platform offers:
- Free foreign currency virtual accounts across six currencies (USD, EUR, GBP, SGD, AUD, CAD), giving you a local account number in your client's country. Businesses must have a solid idea about how virtual accounts compare with local banks.
- Five-minute digital setup with no branch visits, relationship manager calls, or SWIFT copy follow-ups.
- Flat, predictable pricing: ₹19 for transactions under $2,000, $29 for transactions between $2,000–$10,000, and 0.3% for transactions above $10,000, with no monthly fees.
- A free FIRA with every transaction to support the FEMA compliance that exporters and freelancers require.
- eBRC closure assistance: After a one-time DGFT account link, shipping bills can be bulk uploaded, IRMs auto-mapped, and eBRCs generated in a single click. EDPMS closure support is also available for post-shipment compliance.
- Guaranteed settlement within one working day, along with India-based support over WhatsApp, call, and text.
Can you directly send money to a nodal account?
Not manually. A customer's money enters a nodal account automatically during checkout on a payment gateway or marketplace. Individuals cannot initiate a direct transfer to a nodal account since the payment intermediary's system controls the entire routing.
What is a Razorpay nodal account?
What are the RBI guidelines for nodal accounts?
What is the difference between an escrow and nodal account?
Do nodal accounts earn interest?
What happens if a merchant is not settled on time from a nodal account?
