I understand and support the Crypto-ATM's, however isn't the whole idea of Cryptocurrency to be paperless and completely electronic? Wouldn't Crypto banknotes defeat the purpose of that?
No. You've misunderstood both what these 'notes' are and the purpose of Bitcoin.
If you haven't already I would suggest reading Satoshi's original white paper.
https://nakamotoinstitute.org/bitcoin/#selection-49.4-49.211What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.
These 'notes' are actually hardware wallets using NFC. It is the trust element that is important. You're not trusting that a bank will honour the value of a fiat banknote, you're storing Bitcoin on a chip.