I’m fairly new to Unreal Engine 4 and paper2d but you can implement the collision on your paper2d sprites and use the collision on your paper2d sprites, with just a few edits. I normally use my capsule for traces and AI logic.
To give you an example of how I achieve this, my capsule component is really small like a 10 by 10, on a huge creature (whose collision I use instead.) if you select your capsule-> go to collision -> set it to custom -> and set that to no physics collision, it will only be useful for traces. I currently customize my stuff as well because sometimes I want a little more with the options and my player/enemies.
Next step is, on my flipbook character/sprite component inside the blueprint-> I have set it to block all dynamic and enable generate overlap events.
(note: in the sprite editor I have set the collision to either box or shrink wrapped so I can have some pin point collision, and thickness normally set at or above 40)
set up like this, all my “physical” collision is now coming from flipbook character.
(note: flipbook must have collision enabled as well.)
final note: Capsule Component is going to quickly become your best friend. A lot of functionality is built around it. it doesn’t just work for collision but for traces and for logic building with other components that you will build for your game.