If people want banks, they can have them. At this point exchanges have become the banks of the cryptocurrency space. Lots of people just leave their coins in the exchanges, they even have savings accounts.
The ability to withdraw the money and use it directly with no third party involved is still important. Especially since governments are already implementing digital currencies that will be fully under their control.
How is withdrawing your crypto keys from an exchange functionally different from hiding jewellery around the house? At least the value of the jewellery is far less volatile, plus you can wear and enjoy it, which makes you less likely to lose it.
Yes yes you can memorise some encryption key, but that poses its own problems - what happens to your money if you die or become non-compos mentis?
Ultimately any sane person ends up trusting someone, whether a bank, an exchange, a lawyer or safe deposit box. Crypto removes the need for trust with a pretty extraordinary and elegant idea, but nobody actually wants it.
I'm not gonna claim it's different. It's not. Holding funds in a paper wallet means you have a piece of paper that's worth thousands, millions. It's a fact that there are inherent risks to holding that paper.
At some point this becomes about principles. Even if you have banks, even if banks manage to provide a good service without screwing up the economy in the process, you always have the choice to simply opt out of it. You can withdraw all of your money if you want and still maintain the ability to transact with anyone in the world. Now banking is no longer something that's imposed on everyone, it's an individual choice. It's a lot like the right to bear arms.
Your question about what happens to the money if you die is extremely relevant. My father asked me that exact question about cryptocurrencies. I came to the conclusion that if we own crypto then we must somehow make these arrangements ourselves because we can't depend on some government or bank to do it and certainly not some exchange that doesn't even answer emails. It should be possible for family to inherit a physical paperkey but I have to admit I know of no concrete examples of such a thing happening.
The ability to withdraw the money and use it directly with no third party involved is still important. Especially since governments are already implementing digital currencies that will be fully under their control.