What happens when it becomes so good that it's the only option? There's no need for it to be profitable, so it can inevitably undercut private sector competitors. Do you want to live in a country where the central bank controls and monitors your ability to transact with other people?
Just last year, the Canadian government weaponized "debanking" in an effort to quell peaceful protests against vaccination mandates. They restricted the bank accounts of people who peacefully disagreed with government policy stances. And that was just with the status quo of deputizing private banks to enforce the sanctions against the individual citizens - imagine how much more systemized and effective it would be as a coercion measure if the bank accounts were directly managed and controlled by the government.
We're not a banana republic and actually have laws governing what the central back can do, and they can't block transfers without a warrant. Any private banking solution would be subject to same kind of laws.
Banks use Bank Secrecy Act as a cover to debank people. When you complain, banks retort that you agreed to their terms and conditions. Add machine learning and/AI to this mix: debank people because their algorithms flagged them as risky. Just as c-level executives use code language to talk to their yes-men to execute unethical and/or illegal activities. Now replace yes-men and code-language, with maching learning/AI; viola, perfect way to debank without any evidence of unethical doings.
