What’s the alternative that you think is okay for that then?

Certain businesses have regulatory requirements to know and verify your identity (banking, telco).

A UK poster gave an example of how they need to mail the bank a copy of their passport and other private information.

I’d certainly much prefer simply using a digital login solution as an alternative to that. They can verify I am who I say I am, without needing my passport which I would consider a much bigger privacy invasion to hand out.

It is in fact not a hard requirement. It just happens that when you have a relatively cheap and efficient digital identity, which is by definition trusted by the government, banks will use that to reduce risk. It's not that they can't verify your identity any other way, this is just the obvious and easy one.