Android shouldn't be considered Open Source anymore, since source code is published in batches and only part of the system is open, with more and more apps going behind the Google ecosystem itself.
Maybe it's time for a third large phone OS, whether it comes from China getting fed up with the US and Google's shenanigans (Huawei has HarmonyOS but it's not open) or some "GNU/Linux" touch version that has a serious ecosystem. Especially when more and more apps and services are "mobile-first" or "mobile-only" like banking.
Allowing apps to say "we only run on Google's officially certified unmodified Android devices" and tightly restricting which devices are certified is the part that makes changes like this deeply problematic. Without that, non-Google Android versions are on a fair playing field; if you don't like their rules, you can install Graphene or other alternatives with no downside. With Play Integrity & attestation though you're always living with the risk of being cut off from some essential app (like your bank) that suddenly becomes "Google-Android-Only".
If Play Integrity went away, I'd be much more OK with Google adding restrictions like this - opt in if you like, use alternatives if you don't, and let's see what the market actually wants.
There are a lot of scams targeting vulnerable people and these days attacking the phone is a very "easy" way of doing this.
Now perhaps there is a more forgiving way of implementing it though. So your phone can switch between trusted and "open" mode. But realistically I don't think the demand is big enough for that to actually matter.
Even with play integrity, you should not trust the client. Devices can still be compromised, there are still phony bank apps, there are still keyloggers, etc.
With the Web, things like banks are sort of forced to design apps that do not rely on client trust. With something like play integrity, they might not be. That's a big problem.
2. It does not eliminate any meaningful types of fraud. Phishing still works, social engineering still works, stealing TOTP codes still works.
Ultimately I don't need to install a fake app on your phone to steal your money. The vast, vast majority of digital bank fraud is not done this way. The vast majority of fraud happens within real bank apps and real bank websites, in which an unauthorized user has gained account access.
I just steal your password or social engineer your funds or account information.
This also doesn't stop check fraud, wire fraud, or credit card fraud. Again - I don't need a fake bank app to steal your CC. I just send an email to a bad website and you put in your CC - phishing.