That content is illegal in Australia.

https://en.wikipedia.org/wiki/Pornography_in_Australia#Illeg...

Part of the issue is that Steam wasn't properly enforcing rule 6.

    6. Content that violates the laws of any jurisdiction in which it will be available.

Some of that content was violating the laws for what was available in Australia.

And since they weren't doing that, the payment processors were getting pressure and in turn putting pressure on Steam.

So now we've got rule 15.

    15. Content that may violate the rules and standards set forth by Steam’s payment processors and related card networks and banks, or internet network providers. In particular, certain kinds of adult only content.

That should be the responsibility of the storefront, and there should be publicly actionable ways to force them to comply. Payment processors reaching extra judiciary agreements is not the way to go.

Then it should have only been removed from the Australian storefront, rather than the payment processors forcing its removal worldwide.

Wherever a good or service is legal, a global duopoly of payment processors should be forced to process payments for it.

Yes. The article does quote the complainants saying that they tried contacting steam and only after getting no response for months contacted the payment providers. Steam could have delisted in Austria but didn't.

"That content is illegal in Australia."

So why wouldn't the Australian government go after Steam? If you're a legitimate company legally operating in a locale, then it would be reasonable to assume they are following the law if the local authorities are not taking action.