Nodal Account & Payment Gateway

A nodal account is that account, which enables the merchants to process online credit and debit payments successfully. A payment gateway helps to deposit the funds from customer's credit card for sales in the nodal account.

Why cannot the amount work its way directly into the business bank account?

Now as the amount goes first in the nodal account and then the acquirer’s bank account, it is but obvious that a merchant would prefer that the amount is directly transferred into the business bank account. The reason this is not the route has two valid points:

Number one, since at any point in time merchandise may be returned, there is a chance that some amount you receive as e-commerce the platform will be paid back. This happens by subtracting what is kept in the merchant’s account immediately. If not done so, it may account for some level of risk in the transactions. The amount returned, then, is removed from the total amount, and the rest is transferred to the business bank account.

Number two, the payment gateway keeps accumulating deposits from multiple sources/customers. If, while doing so, it keeps transferring each deposit individually it will have to transfer five separate deposits. On the contrary, the payment gateway gathers all the deposits in the nodal account and directly transfers the entire amount as one single deposit. This process makes reconciliation much simpler and easier to handle.

The image above shows the flow of payment starting from the purchase by the customer to the settlement of the amount in the Seller’s bank account.

Step 1: Customer makes the purchase of a product from an e-commerce website.

Step 2: Amount is furthered via Payment Gateway integrated with the website to the Nodal account where it stays till the status shows “customer satisfaction” with the product.

Step 3: Payment is proceeded from the Nodal account to the Seller’s bank account if customer satisfaction is achieved.

Conformity between a Payment gateway and a Nodal account

For any e-commerce platform, it is vital to understand and pick that payment gateway, which can enable transactions to flow in smoothly, safely, quickly, and conveniently. Adding on to it, a payment gateway’s functional qualities are incomplete without an additional facility, which is a Nodal account. Going hand-in-hand, both the services together allow a merchant to make the everyday transactions simpler, more organized and possible from even different parts of the world.

Conclusively, the only major difference between a payment gateway and the nodal account is that one is the channel to flow the transaction from the cardholder’s account while other is the platform where it sits for a while until it is further flown to the merchant’s business bank account.

What is Gateway 'Merchant Account'

A merchant account is a type of the bank account that lets your business accept multiple forms of payment, including credit cards, debit cards, and ACH payments.  An online the payment gateway works like a credit card machine in a sense: It allows your customers to submit payment information via the web.

Process of Payment Gateway