> Then the bank could make money by providing services to their customers.

Which services? And those services would need to be something that I can only provide by being your depositor (otherwise I'll get beaten by someone who provides those services without the added burden of holding and securing your physical money.

You've basically designed a system that increases the costs of being a bank, and eliminates the main source of profit, and hand-waived over how to close that gap.

I suspect it's simply unprofitable to run a bank in the model you've provided. I suspect the only way to make that system work is by saying "banking is a public good, it's OK if it runs at a loss" and making it a gov't provided service. I don't really see a path to private banks existing in the model you outlined.