If you drop your wallet and lose it, someone has access to everything you have and any accounts tied to anything in your wallet. If you lose your phone, they get nothing.
If you have a physical card and it's been worn down, it will fail to scan. That's never an issue with digital cards.
Physical wallets have physical limits to how much they can carry without being a giant lump in your clothing. Digital wallets stay the same size no matter what you put in them.
Physical wallets are limited to what you put in them. If you forget a punch card, boarding pass, or ticket, you have no recourse. Digital wallets never lose anything and always have ways to retrieve the passes or cards within them.
We could go on and on but both options have advantages and disadvantages...
I know if I drop my wallet, the cards inside will still work. They won't be out-of-service-area or forgot to be charged.
The wallet also caters to many use cases the phone will never support. That can be high-tech stuff like some obscure closed-loop fare card or keycard system that isn't NFC-compatible, or the paper punch card from the local burrito place.
And it lets me carry cash, which is still less of a production number for plenty of informal payments-- I'm not walking through a Apple Pay/Zelle/PayPal transaction at a yard sale.
Maybe it's because I'm fat and wear loose fitting clothes-- having a wallet in my pocket is not a huge frustration.