I just want to be able to get a refund if the toaster that I ordered doesn't get delivered. How would crypto go about doing that without it being in the sole discretion of the seller?
It works the same way. You can introduce voluntary trusted market intermediaries and utilize things like escrow. Big enough markets can provide liquidity such that all transactions appear realtime, but sellers can provide a deposit to the market to cover problems.
That is one method among a gazillion.
We do not need banks. All bank functions need to be mathematically automated with no trusted parties.