can I add a prepaid vanilla gift card to my teenagers Apple wallet

What bank issues the vanilla gift card? If the bank doesn’t support Apple Pay it can’t be added.

How old is the granddaughter? If she’s under 13, it won’t work. If between 13 and under 18, she needs to be part of an Apple Family Sharing Group and the Family Organizer needs to add the card. Then Ask to Buy needs to be enabled and she’ll need to ask the family organizer to approve future purchases.

Set up Family Sharing - Apple Support

If Ask to Buy isn't working - Apple Support

I’m trying to add one now that I was gifted and I’m being told that there is an issue between Apple Pay and vanilla gift cards and that Apple needs to fix their app because it’s flagging them as fraud

Just a point of reference. Vanilla Visa cards are what are known as a prepaid debit card. While the bank may allow their debit and credit cards to work with Apple Pay, many restrict their prepaid debit cards. Gift cards are generally non-refundable and non-returnable. They also cannot be used to withdraw cash from an ATM.

What bank issued the card?