Because their card providers are Visa/MasterCard who are known to have these limitations. Having a way to operate without them in the loop will certainly lift such limitations

No it's mostly about anti-fraud and anti-money laundering obligations. It's a risk thing.

I don’t think so, banks would love for these transactions to move from cash to cards

The Dutch Labour Union for Sexworkers says otherwise. They've been complaining about this for years: https://www.nu.nl/economie/6356783/sekswerkers-krijgen-lasti...

Yes, it's a similar situation here in Belgium. Even though they've gained labour status and protections by law, some banks are still being difficult for various reasons including risk due to historical associations with criminal activities. I'm not saying all will be well... but a major obstacle (payment processors imposing their own views on the topic) will be removed.