Sony has abandoned the PSP's UMD format for its upcoming PS Vita, but it didn't go all the way to abandon physical media altogether and making it a digital-download only platform like its PSP GO predecessor. The reason for that is quite simply actually, this transition is not yet suitable for all gamers.
"We believe, for some consumers, the time is [right], but for other consumers, the time is still not [right]," Sony Computer Entertainment Worldwide Studios president Shuhei Yoshida said. "So we believe the time is still not right to go download-only as a platform. Some PS Vita titles, like Uncharted: Golden Abyss, will be close to 4GB in size, which could be too large to download for consumers who do not have a fast broadband connection. Also, some consumers like shopping in retail stores, talking to knowledgeable store clerks, buying and playing games on the spot. We do not want to remove that capability from consumers."
Sony has made it clear that all PS Vita retail games will be available for digital download, but the opposite won't necessarily be true.