Hi! Physics in the game are based on the PhysX framework, so essentially simplified/streamlined numeric rigidbody physics. In addition to that we also fine-tune e. g. collision reactions by applying additional forces based on the state of a character, for example to simulate muscle strength and/or constractions.
Running a lot of physics computations is definitely resource intensive, but to some extent necessary for the interactions that make up physical combat. So, no, it's not really feasible to attempt physics based combat without a framework like PhysX, especially not for a super small team like us.
What we will be doing, however, is trying to utilize the CPU more fully (as in, make better use of multi-core CPUs) and see where we can offload some potentially computationally expensive stuff into more streamlined/simplified versions handled through custom code.