The fight with Sephiroth did feel like pure fan service. Wasn't needed and didn't make that much sense for the story.

I thought the whole ending would've been so much better if Sephiroth had just cut the hole in the whisper wall, walked through, and then the party follows him and it immediately cuts to the credits. That's the end. It would still imply that same "escaping fate" thing, but you wouldn't need the crazy Kingdom Hearts fight against the heartless, and you wouldn't need to ruin the story pacing by having a Sephiroth fight this early.

I don't see any way in which it would be inferior to end it there.