How exactly can the banks control what I can and can't buy or who can spend money? If they were to do that, the banks would just block any transfers from account to account, regardless of the existence of this payment app.
Besides being illegal in my country, and probably all countries with a functioning banking system, any bank that tried blocking transfers would immediately suffer a banking run after the word got out that it was happening.
Also, my credit card company already knows everyone I buy stuff from. All this app sees is money going from one account to another, they can't know exactly what you bought. In the end, this is just a simplified form of money transfer.
You seem to have a very dystopian view of something that's already common in a lot of countries and has caused near-zero problems. I honestly hate having to carry cash and rarely use it these days.
Credit card companies already sell your data, with cash not being an option, you now have no way to opt out of data collection.
If you use the app with a store they can tell where you shopped. If you use it to send money they can tell who your friends are. It's not hard to see how this could be used to harvest data for ads or just to sell.
Does the law affecting the banks affect payment apps? If not, then it's has huge potential for abuse.