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I don't understand why they do it this way. Buying a game on any other platform feels so much nicer, because I know if my console dies I can just log in and re-download. I assume it's something about piracy, but it does feel hostile towards regular users.

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A plausible financial incentive for them would be rent-seeking: they might be afraid they lose money on the balance if you only have to buy the game once. Doing it this way they have a shot at getting money from you again for the same game when new consoles come out.

It actually made piracy easier. At least in the 3ds, all you need to do is add some id of the game to a file in the 3ds and it will be like if you purchased it.

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