I don't know a second factor standard that provides the same level of validation. FIDO2 is probably more secure but it doesn't support the current security mechanisms already in place right now. I'd like the standard to be extended in some way, like Yubikey-like devices with screens to verify what you're doing with the necessary key attestation for government services, but we can only wait and see.
I'm not sure if these apps require Google Play services or not, but if they don't, I have no problem with them from a privacy perspective. You can run them in Anbox if you want and they're some of the lowest permission apps I have on my phone.
The real victims of this move aren't the privacy enthusiasts who run Qubes on their coreboot-enabled Thinkpads, they'll find a way. I'm worried about the elderly and other less technically minded who have no idea how any of these apps work. The government doesn't provide them any courses on how to use their services and neither do the banks. The layout and flow of the official apps keep changing and it's impossible for some to keep up. People say "well you should just Google it then" but that's even worse, because that's the easiest way to get scammed out of your money. Someone will definitely have paid top dollar for an ad that matches keywords like "how to log into bank" leading to a step-by-step guide on how to transfer all your money to a money mule.