It could be called the fintech compliance cycle. They start out with a single compliance officer (who is equipped with not much more than the OFAC list) and no identification requirements other than name and email. Then they get lots of customers due to how easy they are to use and how they don't arbitrarily steal your stuff like Paypal. Eventually they get a letter from some government agency telling them to implement "best practices" because one of their customers did something bad. Then in order to make the government happy they go and buy fancy screening software and hire a bunch of compliance monkeys who go around causing trouble like that described in the OP. At this point they are just a smaller version of Paypal and have very little reason to exist.