IMO there are two separate uses for a term here, and they don't need to be the same.
1. The metagame term used by players when they are creating or thinking about their characters. In this case, we are thinking about the inherited traits our characters receive from their parents. In this case, Ancestry, Heritage, Lineage, Line, Origin, etc. all work well. It clearly communicates the idea behind the choice, since what we're focused on is what the character we're creating receives from the past.
2. The diegetic term that would be used in the world itself, by both NPCs and PCs. In this case, the aforementioned terms are a bit more awkward, because they could refer to a character's specific circumstances more than a much larger group. In this case, terms like Form, Folk, Kin, Kindred, Kind, Kinfolk, Peoples, etc. all work well and communicate the necessary idea of a large group with similar traits.
I suspect WotC went with a term like "species" because it can work in both cases, and this is technically true, but to me it's a very cold, clinical, and somewhat alien way to think about this. People have pointed out species is a fairly old term, and that's true, but it's commonly used in the context of scientific research. It doesn't feel like a term people would use about themselves, especially in the context of a community. And I don't think it's really necessary to choose a single word for every usage, any more than we need to reduce all words for humanity down to a single every-use term.