I do like the system better, it's faster in every way. But lost fares would definitely be a concern.
Also not sure how that has anything to do with making public transit free honestly.
The lax rules and clearly uniformed agents were seen partly as progressive price discrimination, giving free access to public transport to those who really need it.
I would hate to live in a society formed by that ethos...
So completely abolishing fares would mean a considerable, definitively non-trivial increase in spending requirements on public transport for cities – and if you're seriously prepared to spend that much money (or create some sort of additional tax to raise that money, or whatever), I'd rather prioritise spending it on service improvements first, because even in big cities there are enough examples of service offerings that are only borderline attractive.
They actually did some (admittedly smaller-scale) experiments in that direction recently, and as I understood it, the takeaway was that service improvements were indeed somewhat more effective in generating additional passengers than lower fares.
I think both of those factors push most people in Berlin to buy a ticket. With a fine of 60 EUR the staff already pays for itself if they pick up ~2 people/hour, which sounds very realistic. If they then on top also have the effect of increasing the percentage of paying riders by a tiny amount, the whole program is quickly turning a profit.
Edit to add some context:
https://www.tagesspiegel.de/berlin/haft-nach-schwarzfahren-u...
Consider this article from Berlin where a sizeable number of people in jail are there for riding without a ticket. The cost of that needs to be taken into account here.